This GAAP Flash includes articles about the lower number of financial restatements last year, beginning stages in adoption of the new leasing standards (ASC 842), audit documentation tips, and internal company improvements due to SOX requirements.
Financial Restatements Hit Six-Year Low (June 7, 2017) – Wall Street Journal (@WSJ)
In 2016, the number of publicly traded companies restating their financials hit a six-year low! After the Sarbanes-Oxley Act of 2002, there has been a significant decrease in the number of listed companies. The fact there are simply less public companies, combined with strengthened regulations, have led to an improvement in financial reporting and controls.
How It’s Relevant: The rules and regulations are constantly changing to ensure that accurate, useful financial statements are issued by companies. Finance chiefs have clearly made steps towards enhancing their controls and staying compliant with the SEC. No one wants to go through the hassle of restating financial reports! Think you know the SEC rules and requirements? Take a stab at our quiz on the latest SEC Requirements!
Lease accounting standard leaves companies with questions (June 6, 2017) Accounting Today (@AccountingToday)
Companies are in the process of preparing for the new leasing standard (ASC 842). Decisions involved with new processes, controls, and system solutions are bringing up many questions. Businesses are using a considerable amount of judgment as to what qualifies as a lease, what should be reported on the balance sheet, and what analyses need to be performed going forward.
How It’s Relevant: Since a significant amount of judgment will go into processes for the new leasing standard, companies should be in communication with their auditors now. Making sure that everyone is on the same page (especially as far as capitalization thresholds) will ensure that the efforts companies are putting in now will not need to be reconsidered. If you need any help interpreting these standards, feel free to reach out to us! In the meantime, there are plenty of resources to get up to speed on ASC 842.
Audit documentation: Tips for getting it right (June 1, 2017) Journal of Accountancy - (@AICPA_JofA)
The AICPA has found that there are high levels of material nonconformity when it comes to AU-C Section 230 – Audit Documentation. There are a few trends in these shortcomings:
- Auditors are not documenting their work in accordance with GAAS
- There is a common misconception that a “sign off” is sufficient documentation that a detail test has been performed
- Oral explanations in conjunction with written notes do not meet the requirements under AU-C Section 230
It turns out that one in four engagements subject to the oversight in the Peer Review Program were inadequately completing audit documentation.
How It’s Relevant: Identifying and evaluating potential documentation deficiencies in an audit is crucial. Becoming well versed in common flaws, and researching ways to enhance your own procedures is important! There are many resources available to improve audits and prevent recurring deficiencies. Our free PCAOB eBook analyzes what the inspection reports have observed in the past six years in regards to PCAOB audits. GAAP Dynamics also offer a new course, Improving Audit Quality, which is relevant to all audits performed in accordance with any auditing standards (AICPA, PCAOB, ISAs).
Companies spending more time on SOX compliance (June 12, 2017) – Journal of Accountancy (@AICPA_JofA)
Compliance with SOX has proven to be time consuming and costly. However, a new survey reports that the need to comply with the requirements have improved companies’ internal controls and business processes. Three factors that have significantly increased compliance with SOX are: PCAOB requirements, updating controls in anticipation of the new revenue recognition standard, and cybersecurity.
How It’s Relevant: Staying ahead of the game and creating streamlined business processes are proving to be extremely valuable. Half of the respondents indicated that SOX compliance has improved their business processes! This is great news not only for companies, but the investors as well. Keeping up with changes, like the new revenue recognition standard is important on many levels.
This post is published to spread the love of GAAP and provided for informational purposes only. Although we are CPAs and have made every effort to ensure the factual accuracy of the post as of the date it was published, we are not responsible for your ultimate compliance with accounting or auditing standards and you agree not to hold us responsible for such. In addition, we take no responsibility for updating old posts, but may do so from time to time.