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.

Miller Energy Resources, Former CFO, Current COO Charged With Accounting Fraud (August 6, 2015) – SEC (@SECNews)

The SEC has charged former Miller Energy Resources executives for fraudulently overvaluing its oil and gas properties. It was determined that Miller overstated certain properties it acquired in Alaska by more than $400 million after purchasing them in 2009, raising net assets and net income significantly above what should have been reported. Accounting standards required these properties to be stated at fair value, but it was determined that modified reports and valuation assessments used by the chief operating officer did not represent a true market value for these properties. The partner in charge of the audit has also been included in charges of failure to conduct an audit under standards of the PCAOB.

How It’s Relevant: Fair value is a tricky, subjective matter that can have significant consequences! However, a skeptical mind can protect an auditor from missing potentially overvalued assets under these measurement standards. In this case, a company bought properties for about $2 million and the assumption of certain liabilities. The next year it was recording them at a fair value of $480 million. Does such an incredible jump really make sense in only one year? Professional skepticism is a useful tool for combating fraudulent financial statements, especially when it comes to high impact and subjective areas like fair value measurement!

China Intervenes to Support Tumbling Yuan (August 12, 2015) – The Wall Street Journal (@WSJ)

A day after the Chinese yuan tumbled against the dollar, the People’s Bank of China stopped the free fall of its domestic currency by selling dollars from state owned banks to purchase the yuan. This action halted the devaluation of the Chinese currency against the dollar, at least momentarily, and also temporarily reversed the impact that the People’s Bank took to help its slowing economy, which benefits from a lower yuan making exports cheaper for other countries to purchase.

How It’s Relevant: Another week brings another story of the impact foreign currency exchanges rates have on the global market. Volatility in China, the second largest economy in the world, will have far reaching impacts across the world, and multinational corporations should be keen to pay attention to the effects this volatility can have on its reporting currencies and hedging relationships.

Here's One Sign of Trouble in the Subprime Auto Lending Market (August 11, 2015) – BloombergBusiness (@business)

New entrants to the auto lending market are making subprime loans a hot topic for investors and regulators. Losses on cars purchased on loan by subprime borrowers are increasing, and asset-backed securities collateralized by these loans are showing negative signs of loss accumulation. The rise in losses in this sector appears to correspond with the entrance of new issuers in the market.

How It’s Relevant: A higher volume of subprime lending was one of precipitating events of the U.S. recession. These riskier loans can have losses that balloon quickly in economic downturns because the associated borrowers typically have less wiggle room if their income takes a hit. Higher risk translates into higher reserves (which also impacts the income statement) to allow for these losses at any companies involved in the subprime market. It may also be necessary to have higher forward-looking qualitative adjustments to push these allowances up in the face of rising losses!

Surge in Commercial Real-Estate Prices Stirs Bubble Worries (August 12, 2015) – Wall Street Journal (@WSJ)

Rise in commercial real estate volume and valuation is sparking interest from investors and regulators alike. Deal activity has rebounded past pre-recessions levels, leaving lots of observers curious if the market is going to create another bubble. The boost is coming from continued low interest rates, which push investors to put more money in alternative instruments, like commercial real estate backed securities, as well as more lending activity by banks to finance property purchases.

How It’s Relevant: Overly active markets can push valuation of real estate to unsustainable levels. For companies dealing heavily in this market, it is important to monitor the potential for rising interest rates to negatively impact these valuations and therefore the health of its financial condition or operations. This trend is also a reminder of banks loosening credit standards to take advantage of real estate centric lending opportunities, which can then lead to increased losses in future periods with sudden downturns! Keep an eye on those net loan balances and ensure banks are aware of higher future charge offs that could negatively impact the portfolios held today.