Accounting and Auditing Highlights Nov. 23- Dec.9, 2016


 ACCOUNTING HIGHLIGHTS:

 Acct

The Financial Accounting Standards Boad

Nov. 30: The Financial Accounting Standards Board Nov. 30 voted to finalize proposed changes to reporting of employee benefit plans overseen by master trusts.

The forthcoming rules would allow a clearer picture of plan holdings and streamline presentation and disclosure rules related to master trusts, a type of investment structure that holds assets of more than one plan sponsored by a single employer, or by a group of employers under common control.

Dec. 1: The FASB should consider a tiered standard-setting approach so that small public companies falling under a certain market capitalization range would have alternative reporting requirements, FASB's small public company advisory committee told the board.

Small public companies, strapped for staff and internal resources, are buckling under the weight of rules and compliance regulation. As a result, some might be forced to go private, committee members said.

Dec. 7:  FASB proposed Accounting Standard Update Distinguishing Liabilities from Equity (Topic 480)—a simpler method for accounting for equity-linked financial instruments with “down round” features, a common reference to a round of financing in which investors purchase stock from a company at a lower valuation than the valuation placed on the company's stock by earlier investors.

The Securities and Exchange Commission

REVENUE RECOGNITION

Dec. 5: Public companies don't start fully applying far-reaching accounting rules on revenue until 2018, but accountants at the SEC will start scrutinizing preliminary reporting on their potential impacts next year.

The changes in standards will affect all companies, and even if the extent of change for a particular industry or company is slight, the disclosures necessary to explain the changes “and their effects on revenue streams might not be, the SEC's chief accountant Wesley Bricker said at the American Institute of CPA’s conference on SEC- PCAOB developments.

INTERNAL CONTROLS OVER FINANCIAL REPORTING

Dec. 5: Bricker said that over the next several years updating and maintaining sound internal controls over financial reporting “will be particularly important” as major new accounting standards, like revenue recognition and lease accounting  take effect. Deficiencies in companies’ internal controls over their financial reporting can lead to restatements and higher investment costs, he warned.

Dec. 8: Andrew J. Ceresney, who heads the SEC’s enforcement division announced his intent to leave the agency this month, according to a Dec. 8 statement.

Dec. 8: Departing Chair Mary Jo White, who announced her intention to step down Nov.16, said at a meeting of the SEC's Investor Advisory Committee that “It would be a grave mistake to weaken, let alone dismantle, these core post-crisis reforms.” 

Governmental Accounting Standards Board

ASSET RETIREMENT OBLIGATIONS

Dec. 7: GASB issued Statement No. 83, a new accounting standards for asset retirement obligations, giving states and local governments greater clarity decommissioning and dismantling such operations and nuclear power and sewage treatment plants.

INTERNATIONAL ACCOUNTING HIGHLIGHTS

ALTERNATIVE PERFORMANCE MEASURES

Nov.25: The U.K. Financial Reporting Council said that it will be keeping a closer eye on companies’ use of alternative performance measures (APMs) in financial reporting.

“We would expect many companies to make changes in response” to new APM guidelines for listed companies from the European Securities and Markets Authority (ESMA), which took effect in July, FRC said.

The FRC review assessed the interim statements of 20 listed companies in the FTSE 250 and FTSE 100, as well those of smaller companies, and compared them with statements from the previous year.

FRC found that about a third of the companies assessed had enhanced their APM reporting over the past year but that, overall, U.K. companies need to make improvements.

Nov. 29:The International Accounting Standards Board made Francoise Flores a member of the 11-member board for an initial five-year term beginning Jan. 1, 2017.

CONSTITUTIONAL AMENDMENTS

Nov. 30: Trustees of the IFRS Foundation, which oversees IASB activities reduced the board's size to 14 members from 16 members.

CRYPTOCURRENCY:

BCoin  

Dec.9:  New LinkIASB advisory panel members disagreed about the need to set an international standard for cryptocurrencies such as Bitcoin—encrypted digital assets used as a medium of exchange.
As digital currency exchanges can’t draw on clear accounting guidance, digital currencies are accounted for under International Accounting Standard 2: Inventory or under IAS 38: Intangible Assets.

Bitcoin Group Ltd. of Australia, for instance, considers Bitcoins to be intangible assets with indefinite life and uses IAS 38’s revaluation model.

In contrast, Australian digital-currency trader Digital X Ltd. treats its currency as a commodity and applies fair-value measurement under IAS 2.

 

AUDITING HIGHLIGHTS:

AUDITOR INDEPENDENCE

Nov. 29  Securities regulators at the annual auditing conference at Baruch College urged companies and auditors to keep auditor independence issues in mind as enterprises begin to apply major new accounting rules and have questions about how to apply them.

The regulators cautioned companies and auditors about “crossing the line” to the point that external auditors give advice to the extent they make decisions for management, raising the risk the auditors in effect would be subsequently auditing their own work.

INSPECTIONS

inspection

Nov.30: Helen Munter, PCAOB's Director of Registration and Inspection gave a preview of 2016 inspection results at the Standing Advisory Group meeting.  

Overall the problems are all the same as they were in 2015 with some slight improvements, she said.

Issues involving testing of their clients’ internal controls continue to top the list of audit problem areas:auditors continue to have problems spotting weak internal controls over financial reporting when auditing their clients’ statements, inspectors found, Munter said.

AUDIT FEES

Dec. 1:  Audit fee increases rose more rapidly for smaller public companies than larger ones over the last several years, according to Financial Executives International research.

Larger companies are better able to negotiate their fees, often have stronger internal controls over financial reporting and often are better prepared going into an audit, which help to hold down costs, the survey found.

“Acquisitions” and “PCAOB issues" were two main reasons the survey found for the audit fee increase, according to the research.

INTERNATIONAL AUDITING HIGHLIGHTS

AUDIT QUALITY

Nov. 28: Canada's top accounting firms have improved their audit performance, but need to do even more to improve the consistency of audit quality, the Canadian Public Accountability Board said in its annual report.

Annual inspections of the four largest accounting firms—Deloitte LLP, Ernst & Young LLP, KPMG LLP and PwC LLP—showed fewer significant issues in audits they conducted in 2016 compared to previous years.

INTERNATIONAL COOPERATIVE AGREEMENTS

Nov. 29: The PCAOB and its Italian counterpart, Commissione Nazionale per le Societa e la Borsa, have entered into a cooperative agreement to oversee the work of auditors operating in each other's jurisdictions.

PCAOB also secured an agreement with the European Commission to conduct joint inspections with PCAOB- registered firms with European oversight bodies for the next six years, Doty said.

Chairman Doty said at the AICPA's conference on SEC and PCAOB Developments Dec 5 that only a "handful of jurisdictions" remained where the PCAOB can't conduct inspections—Ireland, Belgium, Portugal and China.

"We are well along in achieving protocols in the first three, and we continue dialogue with China," Doty said. Some members of the press questioned him about the continuing failure to reach an agreement with China and he reaffirmed his belief in the importance of the cooperative agreement, a “win-win” for both parties.

INVESTOR CONFIDENCE

wallSt

Dec. 5: The 2016 Center for Audit Quality and Audit Analytics survey shows investors have more confidence in auditors.  

Cindy Fornelli, Executive Director of the Center for Audit Quality, said.at the AICPA conference that heightened focus on management's internal controls over financial reporting is one reason for the an increase in investor confidence.

ENFORCEMENT

Dec. 5 : The PCAOB announced that  Mexico-based Galaz, Yamazaki, Ruiz Urquiza, S.C. (Deloitte Mexico)was censured and will pay a $750,000 civil penalty for failing to effectively implement quality control policies and procedures for audit documentation, including improper alteration of work papers.

Dec. 5:  Deloitte Touche Tohmatsu Auditores Independentes in Brazil (Deloitte Brazil) agreed to pay an $8 million civil penalty, the largest ever imposed by the PCAOB, to settle charges for  issuing materially false audit reports and for trying to cover up audit violations by attempting to destroy evidence, making changes to audit documents and providing false testimony.

Dec. 7: The Deloitte Brazil misconduct was “some of the most serious” ever uncovered by the PCAOB, enforcement director Claudius Modesti said.at the AICPA conference.

Modesti read excerpts from a transcript of a recording made during the investigation.

Senior Partner: Any evidence that you have of this, remove it from your machine. Keep it in a — if you have that, keep it somewhere else, but not in your machine, not in the office. Okay?

Senior Manager: No. Okay.

Senior Partner: Okay? Another thing, considering that he [the Engagement Partner] will take the responsibility for all this, everything you told me, everything we discussed, never happened.

Senior Manager: Okay.

Senior Partner: Never! Whatever happens — I, if somebody says, "No, [Senior Manager] said to you —," I will say, "No, there must be a mistake!" I will never admit that it was said.

   

Composed and Compiled by Laura Tieger Salisbury, Accounting Policy and Practice reporter and editor.

 

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