GAAP Flash – Audit Documentation, SEC Reporting, and Other News – 04.29.16
gaap-flash-audit-documentation-sec-reporting-and-other-news-04-29-16

GAAP Flash – Audit Documentation, SEC Reporting, and Other News – 04.29.16

Would you “fix” your audit file if it was selected for PCAOB inspection and you knew it was incomplete? Unfortunately, once it’s assembled for retention the rules clearly state it cannot be altered. Evidently some auditors didn’t get the memo as the PCAOB recently published a Staff Audit Practice Alert related to improper alteration of audit documentation. In other news, SEC reporting requirements are getting a fresh look. It’s about time given many disclosure requirements haven’t been updated since the 1960’s! These are just some of the news stories we’ve assembled in this week’s GAAP Flash.

PCAOB Publishes Staff Audit Practice Alert on Improper Alteration of Audit Documents(April 21, 2016) – PCAOB News (@PCAOB_News)

Have you ever improperly altered audit documentation after the audit is over? According to the PCAOB Staff Audit Practice Alert (SAPA) No. 14, Improper Alteration of Audit Documentation, you may not be alone. According the press release, over the past few years, the PCAOB has sanctioned firms and individuals for improperly deleting, adding, or altering documentation in correction with an inspection or investigation. The punishments resulting from PCAOB sanctions aren’t lenient! They range from barring individuals from auditing to revoking the firm’s registration with the PCAOB.

SAPA No. 14 stresses that improperly altering audit documentation violates PCAOB rules. PCAOB Auditing Standard No. 3, Audit Documentation, requires that a complete set of audit documentation be assembled for retention within 45 days after the report release date, after which it cannot be touched.

Remember these words to live by, “Right is right even if no one is doing it; wrong is wrong even if everyone is doing it.” – Augustine of Hippo

SEC Takes First Step in Disclosure Rule Revamp (April 14, 2016) – WSJ CFO Journal (@CFOJournal)

Did you know that many of the SEC reporting requirements related to disclosures have not been updated since the 1960’s? Can you imagine how much has changed since then? Think of a world without the Internet, cell phones or even binge watching TV!

It took a while, but in December 2013, the SEC began a disclosure effective project with a goal to review the current disclosure requirements, as well as attempt to find a happy medium between investors who want more information, and disclosing too much or unnecessary information. In April 2016, almost three (short) years later, the SEC finally issued a Concept Release to pursue feedback from the public surrounding business and financial reporting disclosure requirements. The 341-page report includes numbered requests for public comment relating to various business and financial reporting topics, ranging from general matters to very specific, detailed topics.

SEC Chairwoman Mary Jo White warned that the process could take more than a year. Although that seems like a while, at least the SEC is doing something about it because, like most people, we believe annual reports have gotten too voluminous! As Sheryl Crow once said, “a change would do you good”.

GAO Signs Deal with USAID to Improve Audits in Developing World (April 25, 2016) – Accounting Today (@AccountingToday)

The U.S. Government Accountability Office’s Center for Audit Excellence (Center for Audit Excellence) and the U.S. Agency for International Development (USAID) are taking actions to improve the capabilities of audit organizations in developing countries. The Center for Audit Excellence and the USAID signed an agreement on Monday that will “help audit offices in developing countries produce high-quality work on a regular basis and assume an effective oversight role”. As part of the agreement, these organizations will work together, utilizing their knowledge of both audit and the countries’ environments, to help enhance audit capacity.

U.S. Proposes Rule to Shrink Big Banks' Liquidity Risk (April 26, 2016) – Reuters (@Reuters)

The Federal Deposit Insurance Corporation (FDIC) is taking measures to help ensure that banks are liquid enough to withstand a financial crisis, like the one that occurred in 2008. During that crisis, many banks failed, such as Bear Sterns and Lehman Brothers.

On Tuesday, the FDIC released a new rule, which will establish the net stable funding ratio (NSFR). The NSFR will force certain larger banks to show that they have at least a years’ worth of liquidity from stable funding and “discourage reliance on more volatile short-term funding”. The ratio would require banks to hold more high-quality liquid assets to prove liquidity. Bank holding companies and depository institutions with at least $250 billion in consolidated total assets or at least $10 billion in foreign exposure will be required to disclose the NSFR. The NSFR will be effective as of January 1, 2018. What remains to be seen is if all these new capital rules, while trying to protect the public, will actually do more harm than good.

PCAOB Inspection

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