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 Accounting And Auditing

FASB Finishes Taxonomy, FERF Research Aids Users

December 20, 2013

The Financial Accounting Standards Board has finalized its 2014 U.S. GAAP Financial Reporting Taxonomy, which now goes to the Securities and Exchange Commission for final acceptance. FASB's annual update led to changes in the taxonomy as a result of updates to accounting standards and other suggested improvements. More details inside.

Private Company Accounting Changes Spark Debate Over Simplification

December 03, 2013

The move to create exceptions to accounting rules for private companies is sparking a larger debate over simplification, with some pushing for more simplification for public companies too and purists on the other side fretting over a dual set of rules. "One of the dangers is comparability. There's a reason for the way things have been for so many years," says Denise Moritz, senior manager at accounting firm WeiserMazars.

This Year's Stealth Headache: New Rules for Offsetting Disclosures

July 02, 2013

Halfway through the 2013 reporting year, the surprise headache for financial reporting executives seems to be new disclosure requirements about how assets and liabilities on the corporate balance sheet are offset and reported as net positions. "This was a sleeper for some," says Sherif Sakr, a partner at Deloitte & Touche. "Some companies perhaps underestimated the effort that would go into the process." More inside.

XBRL System Showing Progress

June 25, 2013

As the smallest public companies complete the multi-year rollout of XBRL, the digital tagging system for financial reports is starting to show signs of improvement. Problems remain—companies still improperly use extensions to add custom tags—but at a lower rate. "With experience comes improvement," says Virginia Meany, an assistant director at the SEC's Division of Economic and Risk Analysis.

Internal Audit Slowly Shifting to Take on Strategic Risks

June 18, 2013

Internal auditors say they are shifting their attention toward strategic risks, but are still bogged down in the basic financial controls and assurance over financial reporting, according to a recent survey. The shift is happening slowly and not without some growing pains. One of the difficulties is that big, emerging risks are more ambiguous. "They're used to those very black and white, bright lines," says Tom Harper, general auditor at Federal Home Loan Bank of Chicago.

Critics Call Lease Accounting Proposal Overly Complex

June 11, 2013

The latest proposal to overhaul lease accounting fulfills the original objective of bringing all leases on to corporate balance sheets, but not everyone is singing its praises. The plan, proposed by the Financial Accounting Standards Board last month, faces an uphill battle to reach acceptance, and even FASB is divided over it. "The biggest issue is complexity," says Julie Valpey, a partner with BDO USA.

How FMC Automated Controls to Improve Financial Visibility

June 04, 2013

When FMC Corp. took a hard look at its internal controls, it saw an opportunity to automate and improve them to increase the visibility of its reconciliation process. The company was also able to move to a more centralized process where data is readily available. "We are able to provide our CEO and CFO with any information they desire," said Nadia Ciaravino, finance control compliance director for FMC.

Audit Industry Doing Some Soul Searching

May 29, 2013

After damaging reports from inspections of external audits that found several instances of shoddy work over the last few years, audit firms are working hard to regain public trust and prove the value of the service they provide. Last week, at the Compliance Week 2013 conference in Washington D.C., executives at two of those firms and a top audit regulator exchanged ideas on how to improve the quality of public company audits.

Updated Control Framework Makes Companies Dig Deeper

May 29, 2013

The burden of adopting the newly updated COSO framework for internal controls will depend on how closely a company's control environment is aligned with the original framework, said internal control experts from Raytheon and Pfizer at the Compliance Week 2013 conference last week. "When you document your system of internal controls today, you probably aren't talking about the 17 principles, but clearly you'll need to do that," said Ray Purcell, director of financial controls at Pfizer.

Updated COSO Framework to Spark Review of Internal Controls

May 21, 2013

Now that COSO has completed the update of its widely used internal control framework, it's time for companies to determine where control changes might be in order. The good news is that the framework keeps the five core principles, but it also adds 17 new underlying principles that will likely require additional documentation. "Now you need to go one level below," says Christian Peo, a partner with KPMG.

PCAOB Pushes for More Scrutiny of Related-Party Transactions

May 14, 2013

Auditors will soon have to follow new rules requiring them to dig deeper into transactions that appear out of the ordinary and to scrutinize business dealings with executives' family members, large shareholders, former executives, and other related-party transactions. Some say the PCAOB's proposal on related-party transactions is long overdue. "The proposed new standard gets rid of the old 'don't worry too much about this' mentality," says Brian Mayhew, associate professor at the University of Wisconsin in Madison.

Making Changes to Pay Plans? Don't Forget the Accounting

May 07, 2013

When companies make changes to their executive compensation plans they often overlook the accounting consequences. As public companies gravitate toward performance-based plans, for example, they face more mark-to-market accounting. And adding clawback provisions creates other accounting headaches. Some changes leave accountants scratching their heads: "It certainly must not be accountants designing these plans," says Doug Reynolds, a partner at Grant Thornton.

In Search of Insolvency Clues

April 30, 2013

Investors have demanded better warning signs for insolvency recently, and the Financial Accounting Standards Board has been working on identifying ways to require companies to send up a red flag when concerns about continuing as a going concern arise. It's no easy task. "Everyone wants to know what the magic warning sign is, but I can't say there's a single one," says Esther DuVal, managing director at CBIZ Corporate Recovery Services.

KPMG Insider-Trading Scandal Leaves Some Clients in the Lurch

April 23, 2013

An insider-trading scandal has left KPMG reeling, but it has also created a crisis for audit clients pulled into the fray, including Skechers and Herbalife. The companies must find new auditors and submit to new audits going back as far as 2010, which could require a substantial amount of rework. "The new audit firm would not want to rely on anything that team did," says Brian Fox, founder of audit services firm

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.

The End of U.K. GAAP

April 16, 2013

U.S. companies will have to start producing financials for all their British subsidiaries under a new financial reporting rulebook next year, as the United Kingdom phases out its version of Generally Accepted Accounting Principles. While most public U.K. companies moved to International Financial Accounting Standards by 2005, private companies and subsidiaries have had the option to remain on U.K. GAAP. In 2015, that will no longer be an option. More details inside.

When Buybacks Get Complex, So Does the Accounting

April 09, 2013

Companies flush with cash are conducting increasingly complex stock buybacks, some with thorny accounting implications. Buybacks with forward repurchases, written put options, and those involving derivatives, for example, can invite accounting scrutiny. "Essentially you are pulling very complicated accounting rules down upon yourself," says Bruce Pounder, director of professional programs at training firm Loscalzos.

Internal Audit Continues a Push Into Risk Management

April 02, 2013

The role of internal audit continues to evolve. New requirements from Nasdaq and the Federal Reserve emphasize practices such as analyzing the effectiveness of risk management, monitoring compliance with stated risk tolerances, and other risk-based responsibilities. "Stakeholders are stepping up their expectations of internal auditors," says Richard Chambers, CEO of the Institute of Internal Auditors.

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.

Big Companies Filing More Restatements, But on Smaller Matters

March 26, 2013

The largest public companies filed more financial restatements for the second straight year in 2012, although the significance of their restatements overall continued to decline. More restatements on smaller matters could be due to increased pressure from regulators to improve audit quality. "There is the potential some of what we are seeing here is connected to inspection reports," says Chris Wright, managing director at consulting firm Protiviti.

Courts Making It Harder to Blame the Auditor for Fraud

March 19, 2013

With a string of recent successes by audit firms in fending off fraud claims, public companies may find themselves shouldering the legal burden alone when injured investors file litigation. Several decisions by courts have set a tougher legal standard on claims against auditors. "The Supreme Court has thrown up some serious hurdles in claims against auditors," says Trace Schmeltz, a partner with law firm Barnes & Thornburg.

PCAOB Inspections Find Modest Improvement in Small Firm Audits

March 12, 2013

Inspections by the Public Company Accounting Oversight Board have found that smaller firms are reducing the number of audit deficiencies, even as larger ones have more. Audit experts say the results don't necessarily mean that smaller firms are making bigger improvements in audit quality. "It's hard to compare why there are more deficiencies with larger firms than smaller ones," says Gaylen Hansen, a partner with Colorado regional audit firm EKS&H.

Clock Ticking on Applying Income Reclassification Standard

March 05, 2013

The Financial Accounting Standards Board approved a new method last month to explain to investors where companies have reclassified amounts out of "other comprehensive income" into net income. While the standard is fairly straightforward, calendar year-end companies will have to apply it to first-quarter financial statements. "It's not often we see guidance come out that is effective so quickly," says Stuart Moss, a partner at Deloitte & Touche.

FASB Goes With 'Three-Buckets' Approach to Financial Instruments

February 26, 2013

The Financial Accounting Standards Board has finalized its proposal on financial instruments, calling for a mixed use of historical cost and fair value. Some changes in value will be recognized in earnings and others through equity, depending on how a company manages or plans to use the instruments. "The idea is to reduce the number of models and reduce complexity," says Sydney Garmong, a partner with Crowe Horwath.

Many Companies Unprepared for Coming Derivatives Regulation

February 20, 2013

Non-financial companies are just starting to awaken to the complexities of new derivatives regulation. The added requirements include burdensome documentation rules, and with some rules still not finalized, uncertainty is adding to the struggle. "Companies that use derivatives to hedge normal business risks ... are playing catch up," says Gail Bernstein, special counsel at law firm Wilmer Hale.

Audit Firms Passing PCAOB Scrutiny to Clients

February 12, 2013

The Public Company Accounting Oversight Board has been pushing external audit firms to get tougher on internal controls. Now, auditors are, in turn, turning up the heat on companies. "It stands to reason that if the PCAOB is finding reasons to be critical of the work external auditors have done in controls or financial reporting, the auditors would place expectations on the company," says Hal Garyn, vice president of the Institute of Internal Auditors.

Taking Measure of a Multitude of Measures

January 29, 2013

Sure, accounting can be complex, but after considering all the different measurement models accountants need to apply, the system seems downright Byzantine. It seems as if there are almost as many measurement attributes as there are things to measure. Inside, Columnist Scott Taub highlights several models and their variants as he argues for a simpler—or at least smaller—group of accounting measures.

Auditors Are Seeking More Information From Internal Investigations

January 29, 2013

External auditors, under pressure to improve audit quality, are increasingly demanding to see behind the curtain of internal investigations that could affect financial statements—a request often at odds with the interests of lawyers conducting the investigations who want to keep the information privileged. "Privilege has always been a barrier to seeing what's going on in an investigation," says Peter Bible, a partner with audit firm EisnerAmper.

No Clear Solutions in Audit Standoff With China

January 23, 2013

As U.S. regulators press forward with their pursuit of access to documentation from audits conducted in China, public companies with units or subsidiaries there are becoming increasingly concerned that the countries won't be able to resolve the conflict. As few solutions emerge, some are wondering if Big 4 and other leading global audit firms could see their China affiliates barred from practicing before the SEC. More inside.

FASB Wants Companies to Predict and Book Future Credit Losses

January 15, 2013

The Financial Accounting Standards Board has issued a proposed accounting standards update that will require companies to predict credit losses and likely book higher reserves, even before cash flow begins to suffer. While the standard will apply to all companies, the change is intended to give investors an earlier warning that a financial firm may be headed for trouble based on its debt securities and loan portfolio. More details inside.

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