August 2013 Accounting and Auditing Highlights

On Aug. 7 the Financial Accounting Standards Board issued Proposed Accounting Standards Update—Definition of a Public Business Entity: An Amendment to the Master Glossarywith comments due Sept. 20. Having one definition of a public business entity would determine the scope of future accounting and reporting guidance for public entities and thus clarify the boundaries for guidance being developed for nonpublic entities, the proposal states.

 Mary Dunn, Deputy Counsel of The Credit Union National Association (CUNA) said Aug. 8 that this will enable credit unions as non-public entities to qualify for more flexible accounting requirements. In the U.S., legally and for tax purposes, credit unions are considered to be nonprofit organizations. Banks have long complained that credit unions’ status exempts them from many federal and state taxes, thereby giving them a competitive advantage.  

 While the FASB and the International Accounting Standards Board had hoped to issue final standards on revenue recognition by the end of September, the issue date will probably be pushed back to sometime in the fourth quarter 2013, FASB board member Thomas Linsmeier told a conference Aug.6.

 Speaking on a panel with officials of IASB and the Securities and Exchange Commission at the annual meeting of the American Accounting Association, Linsmeier did not rule out a third quarter issuance of the new joint standards, but said for a number of reasons, the fourth quarter was more likely.

A divided Securities and Exchange Commission July 31 adopted—via a 3-2 vote conducted behind closed doors—new rules to strengthen oversight of broker-dealers' custody of customer assets. The rules also highlight an enhanced role for the Public Company Accounting Oversight Board.

The regulations amend the SEC's broker dealer reporting rule—Rule 17a-5 under the 1934 Securities Exchange Act—to require firms to file new quarterly reports—Form Custody—containing information about whether, and how, they maintain custody of their customers' cash and securities.

The amendments also require the firms, whether they have custody or not, to allow examiners from the SEC and relevant self-regulatory organizations to review their audit work papers, if the documents are requested in writing for purposes of a broker-dealer examination. The firms further must allow their accountants to discuss their findings with the SEC or SRO staff.

Broker-dealers must start filing the quarterly reports with the SEC by the end of 2013

The PCAOB’s Aug. 13 proposals would transform auditing requirements. The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion ,which would supersede portions of AU sec. 508, Reports on Audited Financial Statements, and The Auditor’s Responsibilities Regarding Other Information in Certain Documents Containing Audited Financial Statements and the Related Auditor’s Report, which would supersede AU sec. 550, Other Information in Documents Containing Audited Financial Statement, were introduced by Chairman  James R. Doty, who said that he saw the proposed standards as a first step.

 “They have been a long time coming, more than 10 years after Enron and other financial reporting failures that led Congress to establish the PCAOB to devote close, independent oversight to the audit, and nearly five years after the first effects of the financial crisis that still looms over sectors of the U.S. and European economies,” he said.  

The PCAOBproposal for mandatory auditor rotation resulted in passage on July 8 of H.R. 1564, ofThe Audit Integrity and Job Protection Act, an attempt by the House of Representatives to prevent public companies from being required to use specific auditors or use different auditors on a rotating basis. No action has yet been taken by the Senate.

 These changes seem to be following the international trend for transformation of international auditing standards (ISAs). On July 25, the International Auditing and Assurance Standards Board (IIASB) proposed that auditors include specific statements about going concern in their reports, make an explicit statement about the auditor’ s independence from the audited entity, and, for listed entities, disclose the name of the engagement partner in the auditor’s report.

 Among the proposals issued July 22 by the Competition Commission in the U.K for audit reforms is for FTSE 350 companies (the FTSE UK Index Series is designed to provide investors with a comprehensive and complementary set of indices for UK companies that measure the performance of all capital and industry segments of the UK equity market) to put their statutory audit engagement out to tender at least every five years instead of the current 10 year requirement. The Competition Commission also proposes a greater oversight role for the Financial Reporting Council’s Audit Quality Review team—to review every audit engagement in the FTSE 350 on average every five years and report to shareholders on their findings.

 The Competition Commission stopped short of measures requiring mandatory switching of auditors but proposed other measures to strengthen the accountability of the external auditor to the Audit Committee and reduce the influence of management.  

 Complied by Laura Tieger Salisbury, Accounting Policy and Practice Report Copy Editor