Auditing Highlights: March 25- April 7, 2017


AU DITING HIGHLIGHTS:

ENFORCEMENT

March 29: The Public Company Accounting Oversight Board announced sanctions against former Chairman Michael John Morrell and former Chief Executive Officer Juarez Lopes de Araújo of Brazil-based Deloitte Touche Tohmatsu Auditores Independentes.

The sanctions were for violations associated with the earlier Dec. 5 Deloitte Brazil settlement of $8 million, the largest ever imposed by the PCAOB.

Claudius B. Modesti, Director of PCAOB Enforcement and Investigations, said that the further investigation had found misconduct up to the top executives. This misconduct included failures to cooperate with a Board investigation, improper alteration of documents and providing false testimony to investigators.

The PCAOB order censured former Chairman Morrell, barred him from associating with a PCAOB-registered firm for five years, and imposed a civil penalty of $35,000. The PCAOB order censured Araújo and permanently barred him from associating with a PCAOB-registered firm.

SURVEYS

March 29: Deloitte released a study:Business Leaders Leveraging Audit as a Valuable Source of Business Insight, based on a survey of 300 chief executive officers, chief financial officers and 100 executives who serve on audit committees of corporate boards.

Deloitte’s Adam Weissenberg, national managing partner for Deloitte’s U.S. Audit practice, told Bloomberg BNA April 6 that the results indicated that business leaders appreciated the auditor’s independent perspective, recognized the potential value to be gained from audits and found a link between companies that used audit insights and growth of the company.

 “Audits that deliver sharp, tailored insights and illuminate industry trends can give boards and executives information they can use to help improve operations and performance,” Weissenberg said.

Seventy percent of C-Suite executives and 79 percent of audit committee members believe that financial statement audits provide valuable business insights, the survey showed. Nearly all the business leaders polled said that they would pay more for an audit that provides business insights.

Companies that said they used the information from the audit reported better company growth than those that said they rarely or never used the information.

Seventy nine percent of C suite executives and 91 percent of audit committee members agreed that audits of their companies’ financial statements revealed things that their companies could be doing differently or better;

The results also showed that about one in three companies don’t use the information received from their financial statement audits. Weissenberg attributed this to lack of communication after the audit to make sure that it doesn’t get “shelved.” Auditors should follow up with the audit committee or C- suite executives to ask them if they want to discuss the findings and improvements they could make to company processes.  

INTERNAL AUDIT: NAVIGATING DISRUPTION

March 30: PwC’s 2017 State of the Internal Audit Profession recent study, based on nearly 1,900 responses, found that the internal audit function is falling short of stakeholder expectations. The number of stakeholders in 2017 who reported that internal audit contributes significant value dropped to 44 percent from 54 percent in 2016.

The survey showed that only 7 percent of stakeholders considered internal audit to be a “trusted advisor,” a term introduced in 2013 by PwC as “providing value-added services and proactive strategic advice to the business well beyond the effective and efficient execution of the audit plan.”

The internal audit divisions that were rated most highly had evolved into a part of the organization that critically evaluates risk continuously and becomes more “agile” in anticipating business disruption. PwC defines “agile” in this year's study as “prepared” and “adaptive.”

According to the survey, the top five sources of business disruptions are:

  • new regulations, 58 percent;

  • a change in business model, 44 percent;

  • cybersecurity and privacy threats, 37 percent;

  • financial challenges, 36 percent; and

  • technology advances, 34 percent.

There was a strong correlation between a favorable perception of internal audit for reducing risk and the following factors:

  • internal audit members use critical thinking to anticipate disruptive events before they occur;

  • internal audit “actively collaborates” and communicates with other divisions of the company; and

  • internal audit has the reputation of being a “trusted advisor” to the rest of the company. 

INTERNATIONAL AUDITING HIGHLIGHTS

CANADA IMPROVING AUDIT QUALITY

March 30: Brian Hunt, chief executive officer of the Canadian Public Accountability Board, told Bloomberg BNA correspondent Peter Menyas  that  Canada's audit regulator plans to develop new systems to ensure greater consistency in audits performed by major accounting firms, over the next two years.

The national regulator will first work individually in fall 2017 with the Big Four accounting firms—Deloitte LLP, EY LLP, KPMG LLP and PwC LLP—on pilot projects to find ways to improve the quality of audits, identify common areas of risk and what controls are needed to be put in place, and will gradually expand the program to other firms starting in 2018.

Hunt said that after working individually with Canada's largest firms, the regulator will approach each firm based on a set of common issues, he said. “Once we have that template, we'll look at the scalability of that to smaller firms,” he said. “We'll work that through over the next couple of years.”

U.K. AUDITOR OVERSIGHT; INCREASED TRANSPARENCY

April 1: U.K. companies whose audits have been reviewed by the U.K. Financial Reporting Council now will have their names released to the public, under revised council processes.

“The revised procedures will increase the transparency of the Committee's processes by permitting publication of the names of those companies whose reports and accounts it has reviewed, once the cases are closed,” FRC said.

The council on March 31 issued the names of more than 80 companies subject to its latest audit quality reviews through December 2015, including:

• JP Morgan Emerging Markets Investment Trust, Imperial Tobacco Group and GlaxoSmithKline, all audited by PricewaterhouseCoopers LLP;

• Credit Suisse International, audited by KPMG LLP; and

• London Stock Exchange Group plc, audited by Ernst & Young LLP.

AUSTRALIAN TAX AUDITS

April 6: Seven tax audits—four of e-commerce multinationals and another three of energy and mining companies—have raised $2.9 billion in tax liabilities for the Australian Taxation Office. This included 71 audits in the large business area covering 59 multinational corporations,

U.K. LEASES

April 7: Though International Financial Reporting Standard 16: Leases won't take effect for nearly two years, “auditors warn that the impact of IFRS 16 Leases will mean financial ratios and performance measures look very different, and that companies should start to prepare now,” the Institute of Chartered Accountants in England and Wales said.

U.K. companies will have to add about 200 billion pounds ($248 billion) of commercial lease liabilities to their balance sheets once IFRS 16 comes into force, real estate consulting firm Cushman & Wakefield said in a March 2016 report.
Retailers that lease large amounts of property include department store operators John Lewis, Sainsbury’s and Tesco, and electronics retailer Curry’s.

 

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

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