Accounting & Auditing Update

The "Accounting & Auditing Update" is written by Tammy Whitehouse, a veteran business writer who has been a regular contributor to Compliance Week since 2005. Her work has also appeared in industry journals and periodicals including Journal of Business Strategy, Strategy & Leadership, Compensation & Benefits Review, Inc, Buyside, and myriad others. Whitehouse welcomes questions and comments from readers; she can be reached via email at twhitehouse@complianceweek.com.

With Deloitte Ensnared, China Localizes Audit Firms

May 16, 2012

A recent enforcement action against Deloitte is "more of a symptom than a cause" behind a simultaneous policy by China's Ministry of Finance to localize its accounting and auditing profession, says the general counsel of a U.S.-based audit firm.
 

SEC Explores Option for 2-in-1 Filing Method

May 14, 2012

The SEC is considering a simplification to the financial report filing process by allowing companies to file under a single method, known as in-line XBRL, which allows companies to include XBRL tags on HTML documents. Currently, companies must file under the traditional HTML format and the XBRL format separately.
 

PCAOB Summons Advisors, But Mum on Rotation

May 10, 2012

The Public Company Accounting Oversight Board will assemble its advisory panel this week to address a range of emerging auditing issues, including going concern warnings, revenue recognition, and related-party transactions, but the agenda is perhaps most remarkable for what it doesn't address: mandatory audit firm rotation.
 

Doty Scores Visibility to China's Inspection Process

May 09, 2012

U.S. audit regulators will soon be allowed to observe their Chinese counterparts as they inspect firms that audit companies or units of companies that trade on U.S. exchanges, thanks to an agreement struck during a meeting of the U.S.-China Strategic and Economic Dialogue in Beijing earlier this month. Details inside.
 

SEC Looks for Consistent Story in Pension Disclosures

May 07, 2012

The Securities and Exchange Commission is concerned about how companies are describing their pension obligations when they accelerate the recognition of their losses under new accounting policies. The SEC's chief accountant recently said that in some cases companies are using non-GAAP methods of disclosure for pensions. Details inside.
 

FASB Reopens Debate on Going Concern Disclosure

May 04, 2012

The Financial Accounting Standards Board has decided to take another look at whether management should be required to assert that it has doubt about an entity's ability to stay in business. While FASB had recently signaled that it wouldn't require a going concern-type disclosure in connection with liquidity and interest rate risks, now it wants to take a fresh look at whether management should be making a going concern disclosure after all.
 

Grant Thornton Gets Latest Rebuke From PCAOB

May 03, 2012

Add Grant Thornton to the list of major audit firms that have been called on the carpet by the Public Company Accounting Oversight Board for audit failures during inspections of 2010 audit work. The regulator found fault with 15 of the 41 audits by Grant Thornton it reviewed, or 37 percent, including one blown audit that led to a restatement.
 

COSO Extends Timeline to Digest Mountain of Feedback

May 01, 2012

Facing hundreds of ideas for changes and worries over transition, the Committee of Sponsoring Organizations is pushing the target completion date for a rewrite of its widely accepted internal control framework into the first quarter of 2013. COSO is also planning new supplemental guidance to be issued with the final framework.
 

FASB Projects Convergence Wrap Up in Mid-2013

April 27, 2012

The Financial Accounting Standards Board said it expects to send out its financial instruments proposal for a second round of public comment in the second half of this year and to wrap up all of its major convergence projects by mid-2013, including other new standards on leases, revenue recognition, and insurance.
 

Deloitte Loses Guam Client Over Registration Lapse

April 26, 2012

Audit regulators have denied a Deloitte affiliate in Guam and another firm in Germany permission to audit U.S. public companies because they performed audit work in the United States before seeking permission. The Public Company Accounting Oversight Board said the firms did not demonstrate the proper "degree of care." Details inside.
 

Franzel: PCAOB Looking at Audit Committee Role

April 24, 2012

After Congress warned audit regulators to stand down on a possible mandatory rotation requirement, it appears the Public Company Accounting Oversight Board may be steering its attention to audit committees. The PCAOB's newest member, Jeanette Franzel, says the board is considering a look at ways to strengthen the role of the audit committee.
 

FASB Channels EITF Proposals, One to Fix Bank Bailouts

April 20, 2012

The Financial Accounting Standards Board has proposed three separate updates to accounting standards recommended by its Emerging Issues Task Force, one of which is meant to better explain government intervention to save a failed bank.
 

McGladrey & Pullen Gets Harsh Inspection Report

April 19, 2012

McGladrey & Pullen is the latest major audit firm to take a scolding from the Public Company Accounting Oversight Board. The audit regulator listed multiple problems with nearly half of the audits inspected, according to the firm's latest inspection report. The firm joins nearly all the major accounting firms in getting a public rebuke from the PCAOB for higher audit failure rates.
 

IIA, RIMS Call for More Collaboration on Risk

April 17, 2012

Risk managers and internal auditors are putting their heads together to consider how they can collaborate more to create a better approach to risk and decision making. Two influential groups representing each role produced a joint report calling for the professions to work more closely together to respond to strategic risks.
 

FASB Retreats on Going Concern Disclosure

April 13, 2012

The Financial Accounting Standards Board has decided it will not require any judgment-based disclosures about whether an entity is facing difficulties remaining in business. Instead, the board will seek quantitative disclosures that will give investors early signals on when a company may be buckling under liquidity risk.
 

KPMG Offers "To Do" List for Audit Committees

April 05, 2012

Audit committees need to focus more on financial statement issues such as fair-value estimates, impairments, and assumptions underlying other critical accounting estimates, according to KPMG Audit Committee Institute's annual "to do" list for audit committees. Other items on the agenda are economic uncertainty, market volatility, ongoing cost reduction efforts, and regulatory shifts.
 

IIA Survey: Budgets Stabilize, but Audit Plans Off Target

April 04, 2012

A recent survey by the Institute of Internal Auditors suggests internal audit budgets are stabilizing, but chief audit executives still have work ahead of them to align their audit plans with corporate strategic objectives and build the right skills into their departments.
 

FASB Plans Disclosure Paper in 2012

April 04, 2012

The Financial Accounting Standards Board expects to issue a discussion document this summer outlining some new ideas about how to establish disclosure requirements and, the board hopes, how to whittle away at current disclosures that are unnecessary. More details inside.
 

SEC Approves 2012 GAAP Taxonomy for XBRL Filings

March 30, 2012

The Securities and Exchange Commission has approved the 2012 U.S. GAAP financial reporting taxonomy as updated by the Financial Accounting Standards Board, giving companies the green light to use it for their XBRL filing obligations in 2012. The update reflects various changes to accounting standards since the 2011 taxonomy was published.
 

PCAOB Gets Mandate: Tone Down Rotation Talk

March 29, 2012

Congress has given the Public Company Accounting Oversight Board a clear warning to tone down talk of mandating audit firm rotation, especially since the audit regulator hasn't produced hard evidence that the benefits will outweigh the costs. During a House committee hearing last week, members of Congress said the PCAOB may be overstepping its authority on the issue.
 

IA Surveys Point to Risks in Regulation, Technology

March 27, 2012

Concerns about cloud computing and data security and privacy risks are growing among internal audit executives, according to two different surveys by audit firms. One-third of respondents to a survey by Grant Thornton said cloud computing represents a significant organization change with high levels of risk. More survey results inside.
 

Congress Moves to Block PCAOB on Auditor Rotation

March 23, 2012

Congress has decided to join the fray over mandatory audit rotation, with a proposal to amend the Sarbanes-Oxley Act to block the PCAOB from writing a new rule limiting auditor tenure. The PCAOB is currently exploring ways to increase auditor independence, including term limits for auditors.
 

FASB Opens New Project on Repurchase Agreements

March 23, 2012

FASB is, however, taking up a new project to revise rules on the accounting and disclosure of repurchase agreements and related transactions. The board is re-examining the effective controls guidance found in Accounting Standards Codification Topic 860, Transfers and Servicing. Abuses of accounting rules for repurchase agreements surfaced during Lehman Bros. bankruptcy proceedings.
 

SEC Reminds Auditors to Follow IASB on IFRS

March 23, 2012

The Securities and Exchange Commission is reminding auditors that their audit reports on financial statements prepared under International Financial Reporting Standards must comply with the international standard, not national flavors of it.
 

Union Wages New Proxy Battle for Auditor Tenure Disclosure

March 21, 2012

The United Brotherhood of Carpenters is pushing a new round of proxy proposals that call for corporate disclosure on audit firm tenure, to give investors more insight into longstanding relationships that might raise questions about independence. The proposals also seek to uncover how much companies paid in audit fees and the measures they've taken to keep the auditor at arm's length.
 

FASB Won't Re-Open FIN 48 After FAF Review

March 20, 2012

The Financial Accounting Standards Board has decided not to undertake any changes to accounting rules for uncertain tax positions. The decision came after a review found that, while there is room for improvement, uncertain tax positions are recognized and measured more consistently under FIN 48, and the standard is working well enough. More details inside.
 

SEC Staff: Are Differences for FPIs Still Justified?

March 16, 2012

As the world awaits a decision from the SEC on U.S. adoption of international accounting standards, agency staffers are wondering whether they should consider changes in reporting requirements for foreign companies listed on U.S. exchanges. So many foreign issuers now list solely in the United States, they say, that reporting standards may need to be tightened.
 

FASB, IASB Set Sights on Disclosure Overload

March 14, 2012

The heads of Financial Accounting Standards Board and the International Accounting Standards Board say they will now turn their attention to address concerns about excessive disclosure requirements, as the boards conclude projects to converge U.S. and international rules. "Not all disclosures provide useful information to investors," IASB chair Hans Hoogervorst said. Also under scrutiny: companies' boilerplate disclosures.
 

Coming Soon to FASB Agenda: Contingencies Decision

March 13, 2012

The Financial Accounting Standards Board will soon make a decision on whether to move forward with a new standard on accounting for contingencies, although FASB Chairman Leslie Seidman was careful not to tip her hand on what that decision will be. The move has been on hold as the board assesses how well companies are meeting current requirements.
 

PCAOB Re-Opens Comments on Mandatory Rotation

March 09, 2012

The Public Company Accounting Oversight Board has re-opened the comment process for its concept release on whether mandatory term limits or some other solution will make auditors more independent, objective, and skeptical. So far, the board has collected more than 600 comment letters on the topic.
 

BDO USA Report Cites Common Audit Problems

March 09, 2012

The PCAOB has blasted another audit firm for poor audits. BDO USA, the latest company to get dinged, scored poorly on 26 percent of the audits studied during its 2010 inspection. The failure rate is on par with that of its Big 4 competitors, whom were all recently cited for increased rates of audit failures during 2010 inspections.
 

E&Y Draws Link from Risk Practices to Performance

March 07, 2012

It pays to pay attention to risk. A recent study found that companies with solid risk practices produce better revenue and earnings. The study, conducted by Ernst & Young, found that companies with the most mature risk practices generated up to three times better financial performance.
 

IAASB Spotlights Rules Calling for Skepticism

March 05, 2012

The International Auditing and Assurance Standards Board has added its voice to the call for more skepticism by auditors, issuing staff guidance in Q&A format to emphasize its importance. The 16-page document reminds auditors about the importance of bringing a questioning mind to the audit to increase the chance of catching material misstatements.
 

Boards Part Ways on Key Issue in Lease Accounting

March 02, 2012

The Financial Accounting Standards Board and the International Accounting Standards Board are in a standoff over how to treat expenses for rental-like leases. IASB has now developed an approach that would match the expense with the rate of consumption of the leased asset. FASB Chairman Leslie Seidman says her board members are concerned the strategy may be impractical.
 

PCAOB Targets Related Parties in Latest Proposal

February 29, 2012

The Public Company Accounting Oversight Board has proposed another new auditing standard, this time to steer auditors toward more careful assessments of transactions with related parties or other significant unusual transactions. Details Inside
 

Budget Proposal Renews Call for LIFO Repeal

February 28, 2012

Another year, another White House budget proposal to banish last-in-first-out accounting for inventory. As it has each year in office, the Obama Administration is asking Congress to do away with LIFO accounting as a way to raise revenue and align with international standards.
 

SEC Staff Nearly Done With Plan for IFRS Adoption

February 23, 2012

Staffers at the SEC have nearly finished their vision of how the United States might move to International Financial Reporting Standards, SEC Chief Accountant Jim Kroeker said this week. The framework would demonstrate a "strong U.S. commitment" to use IFRS while preserving a role for the Financial Accounting Standards Board to endorse those standards here, he said.
 

PCAOB Preps New Standard on Related Parties

February 22, 2012

After years of fretting over how to get auditors to pay closer attention to deals among related parties within an enterprise or other unusual transactions, the Public Company Accounting Oversight Board is about to publish a proposed new standard to address the concerns.
 

Boards Host Last Call Sessions on Revenue Recognition

February 21, 2012

Approaching their last call for feedback on a brand new way to recognize revenue, the Financial Accounting Standards Board and the International Accounting Standards Board are hosting a series of public meetings globally this spring to answer any last-minute questions or concerns before the rules are finalized.
 

Fresh Reviews Planned for Standards on Mergers, Segments

February 17, 2012

One of the final arbiters of financial reporting rules—the Financial Accounting Foundation—will conduct a review of the accounting standards for reporting business mergers and reporting the performance of operating segments, to see whether recent changes in those standards were implemented effectively.
 

Convergence Naysayers Declare IFRS Dead in the US

February 16, 2012

Fed up with what they regard as U.S. fascination over international accounting rules, two notable accounting professors have written their obituary for the story of U.S. adoption of International Financial Reporting Standards. "The quixotic quest to create uniform international standards is dead and done," they assert.
 

Cheat Sheet: FASB Publishes Guide on Old, New Revenue Rules

February 15, 2012

Still not quite up to speed on the critical changes coming to the accounting standard for recognizing revenue? The Financial Accounting Standards Board has just published a 52-page slide presentation to explain the proposal and to compare it with current rules, so readers can better grasp the changes ahead. Details inside.
 

Treasury, IRS Unveil Latest Plan for FATCA Phase-in

February 10, 2012

The U.S. Treasury and the Internal Revenue Service unveiled a nearly 400-page proposed regulation on the Foreign Account Tax Compliance Act that spells out their plan for how to assure the United States can collect taxes due on U.S. funds held in overseas accounts, and they're signing on key European countries to participate and cooperate. More details inside.
 

PCAOB Levies $2 Million Fine on E&Y, Four Partners

February 09, 2012

In its biggest enforcement action to date, the Public Company Accounting Oversight Board has fined Ernst & Young $2 million, sanctioned four current and former partners, and fined three of those partners a total of $100,000 to settle allegations that the firm violated auditing standards and rules.
 

Tax Staff Puzzled by New IRS Repair Regulations

February 08, 2012

Companies are struggling to get their arms around new regulations from the Internal Revenue Service on when to expense or capitalize a host of repair and improvement costs. So far, they aren't even certain whether compliance will result in generally positive or negative tax results. Details inside.
 

SEC Appoints PCAOB New Member; Aguilar Dissents

February 06, 2012

The Securities and Exchange Commission has named Jeanette Franzel, managing director of the Government Accountability Office, to replace Daniel Goelzer as a member of the Public Company Accounting Oversight Board. But the appointment wasn't unanimous. SEC Commissioner Luis Aguilar raised concerns about Franzel's lack of credentials as an investor advocate.
 

IFRS Might Produce Better Earnings, Study Predicts

February 03, 2012

It's tough to predict how financial reporting, particularly earnings quality, would change in the United States if the Securities and Exchange Commission were to adopt international accounting rules, but a recent academic study makes an attempt. Its surprising conclusion: Adopting International Financial Reporting Standards could lead to higher-quality reporting of earnings.
 

IIA Research Offers Advice on Delivering Insights

February 02, 2012

Internal auditors are making inroads in their quest to deliver more value to companies, but recent research from the Institute of Internal Auditors suggests they may be able to do more to deliver meaningful insights into organizational risks and opportunities.
 

Boards Agree to Mend Financial Instrument Differences

February 01, 2012

The Financial Accounting Standards Board and the International Accounting Standards Board have agreed to work together to narrow or eliminate differences on how financial instruments should be classified and measured. The separate paths the boards were taking threatened to thwart a converged standard on the topic.
 

FASB Simplifies Impairment Test for Intangible Assets

January 27, 2012

The Financial Accounting Standards Board has proposed to simplify accounting for intangible assets with an indefinite shelf life, such as licenses, distribution rights, and trademarks. The proposal adds an optional step to the front end of the impairment test that would allow companies to skip a complete, quantitative analysis when the full test clearly isn't necessary.
 
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