This week’s GAAP Flash includes articles about auditors focusing more on fraud detection, the PCAOB targeting management bias with new auditing proposals, and poor governance and internal controls at Toshiba and Fujifilm.

Auditors focusing more on fraud detection (June 19, 2017) – Accounting Today (@AccountingToday)

Auditors are increasingly taking responsibility for fraud detection and cybersecurity at companies, whether they like it or not. Risk management is one of the major areas of fraud detection; therefore, auditors need to make sure that the proper controls over financial reporting are in place. As risk management ties in with cybersecurity, the use of technology when looking for ongoing fraud, inconsistencies, or irregularities is critical in identifying any red flags within data trends.

How It’s Relevant: In Accordance with AS12, auditors must establish a process for identifying and assessing risks of material misstatement in an audit, which includes fraud risks (the basic concept of an audit!). And in today’s environment, the use of technology is changing the way these procedures are performed. Recent inspection findings show that risks are not being properly identified so auditors really need to challenge the identification and related review procedures! Are you looking for ways to improve your audit procedures? If so, we are offering a new course, Improving Audit Quality, where we discuss practical ways to improve the quality of your audit.

PCAOB targets management bias with new auditing proposals (June 16, 2017) – Accounting Today (@AccountingToday)

The PCAOB’s recently proposed rules on auditing accounting estimates and using the work of specialists indicate that auditors need to view management bias more skeptically. Auditors will be required to scrutinize the work of outside specialists as well as improve their documentation on how the specialists arrived at their valuations rather than just trusting the estimates provided by management.

How It’s Relevant: Auditing accounting estimates ranks third among the most cited PCAOB inspection deficiencies so there should be no surprise that the PCAOB is addressing this concern! Professional skepticism is the core of an auditor’s methodology so enhanced requirements will force auditors to really question management’s information and intentions. Check out our blog post on Auditing accounting estimates for more information on PCAOB inspection findings.

Toshiba Board, CEO blasted for poor governance (June 19, 2017) – Accounting Today (@AccountingToday)

Proxy adviser Glass Lewis & Co blasted Toshiba Corp.’s board for poor governance amid years of accounting troubles, clashes with accountants over financial statements, weak internal controls, and management missteps. All of this has put investors at risk of seeing their shares delisted.

How It’s Relevant: A company’s board of directors is ultimately responsible for defining and monitoring corporate culture and setting the tone at the top. The complete lack of internal control effectiveness, financial reporting procedures, and auditing systems in place at Toshiba has caused a mess and the “reset” button needs to be pushed. Assessing risks would be a good place to start, both from a company and auditor perspective. Read more about the Risk Assessment Standards in our recent blog post.

Fujifilm Addresses Accounting Problems (June 19, 2017) – The Wall Street Journal (@WSJ)

This week, Fujifilm Holdings announced that their New Zealand location within the Fuji Xerox subsidiary had problems with internal controls and inappropriate accounting related to commissions and bonus incentives. As a result, six board members resigned due to poor governance. The announcement has left some wondering how much control the company has over its overseas units.

How It’s Relevant: This can happen anywhere! Multi-location audit risks need to be properly understood and identified, and entity level controls need to be considered. Recent PCAOB inspection findings have identified that insufficient control procedures are in place to address risk of material misstatement in multi-location engagements. Take a look at our free PCAOB eBook, which analyzes what the inspection reports have observed in the past six years in regards to PCAOB audits.

Disclaimer
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.