GAAP Flash! News For CPAs in Public Accounting - 7.24.15
accounting news

GAAP Flash! News For CPAs in Public Accounting - 7.24.15

Business acumen is keenness and quickness in understanding and dealing with a business situation in a manner that is likely to lead to a good outcome. For CPAs in public accounting this means performing higher quality audits. But who has the time to compile a list of relevant and timely accounting news relevant to CPAs? We do! Here are a few articles, blog posts, and publications designed to help increase business acumen in the profession.

Insurance Banana Skins (July 2015) – PricewaterhouseCoopers (@PwC_LLP)

This in-depth report summarizing a survey of over 800 respondents examines risks facing the insurance industry and identifies those that appear most urgent to insurance practitioners and close observers of the insurance scene around the world. According to the report, the top global risks facing insurers are (in order):

  1. Regulation
  2. Macro-economy
  3. Interest rates
  4. Cyber risk
  5. Investment performance

How It’s Relevant: If you are involved with the insurance industry in any capacity, this is a “must read.” For auditors, whether internal or external, proper risk assessment is key to performing a quality audit as it drives the control testing and substantive procedures. Wouldn’t you like to know what those “in the know” think about risk? It is not surprising that regulation is the number one risk for the third year in a row. According to the report, “there is a widespread fear that the volume of regulation is swamping the industry – it costs too much; it takes up too much management time; and it kills competition.” Our government doing what it does best!

Big Banks Keep Scaling Back Bad-Loan Reserves (July 16, 2015) – The Wall Street Journal (@WSJMoneyBeat)

During the second quarter the four largest U.S. banks released a total of $1.14 billion of their loan-loss reserves. This marks the 22nd consecutive quarter (that’s right, five and a half years) that banks released loan reserves to boost their bottom line – to the tune of $86 billion! This well-written article by Michael Rapoport explores why and is a good read for anyone involved in the banking industry.

How It’s Relevant: Loan reserves are a delicate subject and a critical accounting estimate for all banks. Banking regulators want “enough” loan reserves to protect depositors, erring on the side of conservatism, while the SEC require that the allowance for loan losses approximate the amount of incurred losses in the portfolio in accordance with ASC Topics 310-10 and 450-20. Banks of course are caught in the middle, while auditors need to ensure banks are not releasing their loan-loss reserves to manage earnings. Did you know that industry-wide, loan-loss reserves have fallen to 1.45% of total loans and leases as of March 31, 2015 according to the FDIC? This is the lowest level since the end of 2007 – and we all know what happened next!

PreView – Protiviti’s View on Emerging Risks – Volume 1, Issue 1 (July 2015) – Protiviti (@Protiviti)

As more organizations continue to evolve their risk governance practices, focused and relevant information about emerging risks is at a premium. The objective of Protiviti’s PreView newsletter is to provide an input for these efforts as companies focus on risks that are developing in the market. The following risks, along with noting which industries are impacted, are discussed in this in-depth newsletter:

  • Mobile Banking: A Departure from Branch Expansion
  • Food: A Spending Split with Healthcare Ramifications
  • Emerging Middle Class: Shift in Education and Implications
  • Human Capital: The Aging Workforce
  • Emerging Risk Spotlight: Social Media Lending
  • On the Radar

How It’s Relevant: This newsletter is just plain cool! Most accountants, worried about the “here and now,” don’t really think about emerging risks facing their company or client, but you can bet those in the C-Suite do! This newsletter arms accountants with relevant information to understand these emerging risks in order to better perform their jobs, as well as sound intelligent at the next meeting! Be sure to bookmark their blog, “The Protiviti View” to continue the discussion (and your knowledge) of emerging risks.

Accenture 2015 Global Structural Reform Study – Unlocking the Potential of Global Structural Reform (July 14, 2014) – Accenture (@Accenture)

Accenture, who surveyed more than 131 banking, insurance, and capital markets institutions, reports more than half of large financial institutions expect to invest at least US$200 million on projects to overhaul how the do business to address global structural reform (GSR) regulations this year, with nearly one third expecting to spend at least US$500 million. This study does a good job of explaining how GSR is re-writing the financial services landscape. According to the study, institutions are indeed responding to GSR, but notes their plans appears focused meeting regulatory demands along, rather than more strategic implications.

How It’s Relevant: If you are involved with financial institutions you NEED to be familiar with GSR, which include Dodd-Frank Section 165/6 and Basel III, especially since less than one-quarter of the survey respondents said they are compliant with these key regulations. Obviously all this regulation comes at a cost. Did you know that more than two-thirds of respondents forecast that small banks might go out of business because they might not be able to afford to keep up with regulatory changes? Might be good to know if you are working for or auditing a small bank!

Accounting Roundup: Second Quarter in Review – 2015 (July 2015) – Deloitte (@DeloitteUS)

Deloitte’s Accounting Roundup is a quarterly series that provides accountants with the latest developments with respect to:

  • Accounting
  • Auditing
  • Governmental Accounting and Auditing
  • Regulatory and Compliance

The second quarter of 2015 was a busy one for all the standard setters and this publication does a great job of summarizing it all in one place!

How It’s Relevant: If you are an accountant, you MUST stay abreast of current developments. Some of the highlights of the second quarter include:

  • Significant progress by the FASB with respect to its simplification initiative
  • Amendments made to the joint FASB-IASB revenue standard, including both standard setters deferring the standard’s effective date by one year
  • New GASB statements related to pensions and postemployment benefits

Whether you use this series or similar publications produced by another Big Four firm, we recommend you get in the habit of keeping up to date with new pronouncements (or risk being obsolete…like inventory!).

accounting and auditing update

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