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.

So Far, SEC Holds Silent on New COSO Framework

May 22, 2013

Controllers and auditors may be abuzz about the new COSO internal control framework, but so far the Securities and Exchange Commission is silent on whether it will require public companies to use the framework as part of their SOX compliance programs. Marie Hollein, head of Financial Executives International, did say at Compliance Week 2013 that the agency was heavily involved in crafting the framework since the start.
 

Analysts Predict More Companies Will Move to Short-Term Leases

May 21, 2013

Analysts are predicting that companies will begin engaging in short-term leases or service agreements as accounting standard setters get closer to finalizing new rules for how to account for leases. The latest proposal from the Financial Accounting Standards Board might cause companies to shift their current leasing practices as a way to minimize the flood of assets and liabilities that will rush on to corporate balance sheets under the rules.
 

Internal Auditors Could Make External Audits More Efficient

May 21, 2013

If internal auditors are frustrated about the extent to which external auditors rely on their work, they should circle the wagons internally and initiate dialogue about how to get a better balance to improve audit efficiency.
 

SEC Approves 2013 GAAP Taxonomy for XBRL Use

May 20, 2013

The Securities and Exchange Commission has approved the 2013 U.S. GAAP Financial Reporting Taxonomy, giving companies the green light to rely on it for use in preparing and submitting their financial statements in XBRL. While the changes are minor, the SEC says it is important for companies to assure that their XBRL filings reflect the latest taxonomy.
 

Deloitte Offers Insights on Risk Intelligent Compliance

May 20, 2013

As compliance continues to evolve from a list of necessary evils to a strategic initiative, Deloitte is offering senior business leaders and board members some insight into how leading organizations are taking their compliance efforts to the next level.
 

Survey Says Boards Troubled by Reputation Risk

May 20, 2013

After financial risk, reputation risk is the biggest concern that keeps board directors awake at night, according to the latest poll from audit firm EisnerAmper. Nearly two-thirds of the board members surveyed say it is their next biggest risk, a huge increase from when the survey was conducted last year. Directors cited compliance and regulatory risk as the third largest risk. More survey results inside.
 

FASB, IASB Reveal Latest Lease Overhaul Proposal

May 16, 2013

At long last, the Financial Accounting Standards Board and the International Accounting Standards Board have published their second draft of a proposed standard to overhaul lease accounting to bring all but the shortest-term leases onto corporate balance sheets. Three of FASB's seven members do not support the proposal, however, calling it overly complex and overly burdensome on preparers. More inside.
 

PCAOB Drives Corporate Focus on Risk, Increased Cost

May 15, 2013

Through their inspections of audit firms, audit regulators are driving more corporate focus on high-risk areas, more documentation, more shifting of Sarbanes-Oxley compliance work back to the internal audit department, and increased costs.
 

COSO Finalizes New Internal Control Framework

May 14, 2013

COSO has published the final version of its newly revised internal control framework, along with two additional resources, which should set public companies in motion to fully review their internal controls to assure they reflect the latest guidance.
 

Companies Take on Debt to Keep Foreign Cash Offshore

May 10, 2013

Apple isn't the only company that's issuing debt, even while it's sitting on mountains of overseas cash. More U.S. companies are taking on debt to manage cash needs inside the United States, while they continue to amass cash offshore in jurisdictions with lower tax rates. Details inside.
 

Auditor Sanctions Tied to Fraud Most Common at Small Companies

May 08, 2013

The Securities and Exchange Commission has sanctioned auditors a total of 87 times from 1998 through 2010 for various failures associated with financial reporting fraud, with only 11 of those failures falling in the years after enactment of the Sarbanes-Oxley Act.
 

Companies Should Prepare for Tax on Internet Sales

May 07, 2013

It was fun while it lasted, but companies should begin preparing for the likelihood that they could soon be required to collect state sales tax on Internet and catalog transactions. Last week the Senate approved the Marketplace Fairness Act of 2013, which would allow states to require companies with national sales of more than $1 million to collect and remit tax on Internet transactions, even if they have no physical presence in the state. More inside.
 

PCAOB Readies New Proposal on Related Parties

May 03, 2013

The Public Company Accounting Oversight Board wants audit firms to take a closer look at related-party transactions and dealings that could be considered out of the ordinary. The PCAOB is preparing to propose a revised auditing standard that emphasizes more scrutiny of such transactions and provides new steps to ferret them out. Details inside.
 

Dow Jones 30 Lower Taxes Going Offshore, Study Shows

May 02, 2013

U.S.-based corporations are paying on average 27 percent of their earnings in taxes, despite a U.S. corporate tax rate of 35 percent, mainly because they have become good at keeping their earnings offshore in jurisdictions with lower rates, according to a recent study by Georgia Tech. More findings inside.
 

PCAOB's Ferguson to Chair Global Regulatory Group

April 30, 2013

Lewis Ferguson, a member of the Public Company Accounting Oversight Board, has been elected to chair the International Forum of Independent Audit Regulators through April 2015, a group determined to help identify how to measure audit quality and how the Big 4 may affect it.
 

PCAOB Dangles Credit to Entice Cooperation

April 30, 2013

Regulators are trying to entice auditors to own up to their mistakes and cooperate with investigations by pledging some consideration when it comes to disciplinary outcomes. The Public Company Accounting Oversight Board has issued a policy statement that says it will take into account any "extraordinary cooperation" on the part of auditors when deciding the outcome of a PCAOB investigation. More inside.
 

EU Committee Advises Law on Audit Firm Rotation

April 25, 2013

The European Parliament's Committee on Legal Affairs has voted to recommend that Parliament adopt a law to require audit firms to check a company's books for no more than 14 years, with a possible extension to 25 years if certain safeguards are present. It also wants to prohibit companies from considering only Big 4 firms when searching for a new auditor. More details inside.
 

Skechers Hires BDO USA After KPMG Quits Audits

April 25, 2013

Skechers USA has hired BDO USA as its auditor after KPMG resigned and withdrew two annual audit opinions because the engagement partner was facing allegations of insider trading. The company said it will file its Form 10-Q for the first quarter of 2013 on time on May 10, or no later than May 15 with required notice provided to the SEC.
 

Going Concern Proposal to Follow Liquidation Guidance

April 24, 2013

Good news if you're going out of business: The Financial Accounting Standards Board plans to revisit its rules for when a floundering company should switch its accounting to a liquidation basis, as part of a larger effort to improve disclosure about a company's ability to continue as a going concern. FASB has been tinkering with the subject since 2008.
 

FASB's Russ Golden Replaces Seidman as Chairman

April 23, 2013

Russ Golden will take over as chairman of the Financial Accounting Standards Board when the term for present Chairman Leslie Seidman ends on June 30. Golden, currently a board member, says one of his key priorities will be to complete the remaining major projects to converge U.S. accounting standards with international standards. More inside.
 

In Auditing, Transparency Tackles Irrelevance, Doty Says

April 19, 2013

James Doty, chairman of the Public Company Accounting Oversight Board, called for greater transparency in the audit process, during a recent speech in London. The role of auditing in capital markets today is under fire, he said, because investors don't get enough insight from auditors about what they do or learn in the course of a normal audit. More inside.
 

PCAOB Undecided on Naming Engagement Partners

April 17, 2013

More than four years after a Treasury Department committee urged the Public Company Accounting Oversight Board to consider a rule requiring audit engagement partners to sign their audit reports, the PCAOB is still not decided on whether or how it might do that. Now the PCAOB has updated its agenda, indicating it will act on a proposal sometime between now and September. Details inside.
 

FASB, PCC Call for Views on Private Company Rules

April 16, 2013

The Financial Accounting Standards Board is asking again for views on how it should develop differences in accounting standards for private companies compared with public companies. FASB and its Private Company Council have published a second "invitation to comment" on their proposed framework.
 

Court Ruling Buoys IRS's Hard Line on Deferred Compensation

April 16, 2013

The Internal Revenue Service is aggressively pursuing those who claim discounted stock options as qualified deferred compensation. The IRS says it doesn't comply with Section 409A, and a Court of Federal Claims recently agreed. The ruling is cause for companies to review their option granting practices. "For the IRS to slap this penalty on a taxpayer who it seems tried to comply with 409A is a little disheartening," says Lori Basilico, a partner at law firm Edwards Wildman Palmer.
 

Former KPMG Partner Charged With Insider Trading

April 12, 2013

The Securities and Exchange Commission and the U.S. Attorney's Office have charged Scott London, the former partner in charge of KPMG's Los Angeles audit practice, with insider trading, alleging he traded information on five KPMG public company audit clients with a friend in exchange for cash, jewelry, and entertainment. More details inside.
 

Split FASB Proceeds With Complicated Lease Standard

April 10, 2013

Despite misgivings over how complex its plan for lease accounting has become, the Financial Accounting Standards Board has decided, by a vote of four to three, to proceed with issuing its newest proposal on how to bring all leases on to corporate balance sheets. FASB expects to publish the proposal in May with a comment period ending sometime in September.
 

KPMG Fires Engagement Partner Fingered in Insider Trading Scandal

April 09, 2013

Officials at KPMG and Skechers USA Inc. have fingered Scott London as the engagement audit partner at the center of an insider trading scandal that has put two companies in a scramble to find a new audit firm and has rocked the highest ranks of the audit profession.
 

Companies Transform to Respond to Risks, Survey Says

April 09, 2013

Responding to risks from global market shifts and continued economic uncertainty, an increasing number of companies are undergoing major transformations to build new business models, tap into new channels and markets, and rethink supply chains and business locations, according to the latest risk-related survey from PwC.
 

FASB Plans Gut-Check Discussion on Leasing Standard

April 05, 2013

The Financial Accounting Standards Board has scheduled a discussion on its plan to re-propose an overhaul to lease accounting, as it continues to face questions and concerns over its revised approach. The accounting standard setter is preparing to release the update sometime this spring. Details inside.
 

Middle Market Lags in Corruption Compliance

April 04, 2013

A recent review of anti-corruption compliance at middle-market companies suggests they have a lot of work to do to protect themselves against acts of bribery or corruption. A recent survey found that 42 percent of medium-sized companies with global exposure have no global compliance plan. Nearly 35 percent said their companies offer no compliance training on corruption. More survey results inside.
 

FASB Floats New Definition, Disclosures for Discontinued Operations

April 03, 2013

The Financial Accounting Standards Board has proposed a new accounting standard to narrow what qualifies as a discontinued operation that must be explained in financial statements, but increase the disclosure requirements around those that qualify for reporting.
 

Anti-Fraud Groups Publish Fraud Case Study

April 01, 2013

The Anti-Fraud Collaboration has developed and published a fictitious case study of a potential material fraud to serve as a training resource and discussion starter for audit committees, financial executives, internal auditors, and external auditors.
 

FASB Extends Comment Period for Credit Loss Proposal

March 28, 2013

Still not sure how you feel about FASB's new proposal for a more forward-looking approach to reporting credit losses? No worries: The board has extended its deadline for submitting comments until May 31. The extra month is intended to let commenters digest the board's FAQ guidance on its plans, published last month.
 

PCAOB Proposes Reorganization of Auditing Standards

March 27, 2013

The Public Company Accounting Oversight Board is preparing to reorganize the entire collection of auditing standards into a topical structure under a single numbering system, much the way accounting standards were reorganized and published in a new format in 2009. More details inside.
 

FASB Issues FAQ on Credit Loss Proposal

March 26, 2013

Attempting to set straight some confusion on its proposal for changing the accounting for credit losses, the Financial Accounting Standards Board has published a 16-page question-and-answer document to clarify the objective of the proposal and the rationale behind the board's approach. Details inside.
 

FASB Rolls Out More XBRL Implementation Guides

March 22, 2013

The Financial Accounting Standards Board has issued new guides on XBRL intended to further refine how preparers use the U.S. GAAP financial reporting taxonomy to submit their financial statements. Of the three new implementation guides, one focuses on segment reporting and two more focus specifically on the insurance sector.
 

COSO Slates New Framework Reveal for May 14

March 21, 2013

The Committee of Sponsoring Organizations has given final approval to the newly revised Internal Control - Integrated Framework: 2013, but companies will have to wait until May 14 to get a copy. COSO also plans to release a companion piece to help companies apply the updated framework to meet their financial reporting objectives. More inside.
 

IA Focusing on Compliance Risk, Streamlined Testing

March 19, 2013

Compliance risks are now the largest single worry for internal audit departments—even trumping financial risks, long the top headache—and companies are racing to devise ways to simplify compliance tests to cope with increasing, and sometimes redundant or overlapping, requirements. So says a new study from Grant Thornton looking at the profession.
 

FASB, IASB Credit Loss Proposals Search for Consensus

March 15, 2013

Nearly five years after the financial crisis that set off a global recession, the debate over how to account for loan losses—especially ones that are expected but haven't yet occurred—has still not produced a clear answer for how accounting rules should be revised. Accounting boards on both sides of the Atlantic are now floating separate ideas.
 

FASB Issues Rule on Currency Translation Adjustments

March 13, 2013

The Financial Accounting Standards Board has finalized a new rule that is intended to clarify when and how a company should release an accumulated foreign currency translation adjustment into earnings when a company sheds its investment or controlling interest in a foreign business operation.
 

Restatements Fall as a Whole, but Rise for Biggest Companies

March 12, 2013

The total number of financial restatements fell last year to only 768, nearly half the peak of restatements in the 2000s, but restatements specifically at large U.S. companies rose in 2012 for the second consecutive year. The most common causes of restatements were debt and quasi-debt, with tax issues close behind. More inside.
 

PCAOB Exposes Quality Control Concerns at PwC

March 07, 2013

The Public Company Accounting Oversight Board has accused PwC of failing to address audit quality control concerns adequately for two consecutive years, so the board has published detailed criticisms in updated inspection reports. The PCAOB's 2008 and 2009 PwC inspections raised doubt that the firm's quality control system could ensure that audit work would meet applicable requirements.
 

FASB Agrees to Reconsider Business Segment Rules

March 06, 2013

The Financial Accounting Standards Board has agreed to take a fresh look at its rules on business segment reporting, after an internal review suggested there may be a reason to consider changes to existing standards. The SEC has cited business segment issues as a frequent area of problems and comments in financial statements. More details inside.
 

Survey Suggests Audit Committees Get Adequate Information

March 05, 2013

A recent survey of audit committee members suggests they are satisfied with the information they get from external auditors, even as audit committees have been getting plenty of advice lately on what to ask for. Most audit committee members gave external auditors high marks for the level and quality of the information they provide. More survey results inside.
 

FASB Clarifies How to Book Joint and Several Liability Arrangements

March 01, 2013

The Financial Accounting Standards Board has finalized a new update to accounting standards to straighten out varying practices on how to account for obligations stemming from joint and several liability arrangements. The update provides guidance for the recognition, measurement, and disclosure of such obligations. Details inside.
 

FASB Renews Siegel, Gives Board Agenda Authority

February 27, 2013

The Financial Accounting Foundation has moved authority for setting the agenda and prioritizing new projects for the Financial Accounting Standards Board from the chairman to the full board. It says current chairman, Leslie Seidman, suggested the change. It also reappointed Marc Siegel to a new five-year term on the board. More inside.
 

Small Firms Make Small Progress, PCAOB Says

February 25, 2013

Smaller audit firms are making progress reducing audit failure rates, but the rates are still too high to satisfy the Public Company Accounting Oversight Board. During audit inspections of small firms from 2007 to 2010, 44 percent had at least one significant audit performance deficiency, down from 61 percent during the prior three years. In contrast, audit failures at larger firms have generally increased over the last three years. More details inside.
 

U.K. Panel Suggests Rotation to Improve Audit Quality

February 22, 2013

The U.K. Competition Commission is considering recommending audit firm rotation as one of the possible ways to improve audit quality. The Commission says audit firms and public companies in Britain are too interdependent, restricting the objectivity and skepticism that is meant to protect shareholder interests. More inside.
 

Auditor-Client Mismatch May Squeeze Audit Quality

February 21, 2013

Young staffers at outside audit firms are often intimidated by management at the companies where they conduct audits, leading to incomplete or poorly documented work, according to a recent academic study. The study's authors said they found evidence that staff auditors are often mismatched with company management in terms of age, experience, and accounting knowledge. More details inside.
 

OECD Offers Plan for Cross-Border Investment Tax Woes

February 20, 2013

Attention in the tax department: The Organization for Economic Cooperation and Development has set its sights on tax law for international investing, unveiling a new plan to streamline processes, reduce costs, and assure investors of their rights while also improving tax compliance. The current system, the OECD says, undercuts cross-border investors' ability to claim withholding relief effectively.
 
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