GAAP Flash! News For CPAs in Public Accounting - 8.28.15
GAAP Flash! News For CPAs in Public Accounting - 8.28.15

GAAP Flash! News For CPAs in Public Accounting - 8.28.15

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.

Emerging-Market Currencies Battered by Commodities Slide, China Turbulence (August 20, 2015) – The Wall Street Journal (@WSJ)

“It’s total carnage in commodity currencies,” said Piotr Matys, an emerging-markets analyst at Rabobank in London. Policy makers in many emerging-market countries are struggling to cope with several factors beyond their control. These include steep declines in the prices of commodities, doubts over the health of the Chinese economy, and the likelihood that the U.S. Federal Reserve will soon raise interest rates. For example, the Russian ruble has lost nearly 17% of its value against the dollar in 2015 and the Brazilian real is one of the worst performing emerging-market currencies this year, currently trading around 3.49 against the dollar, compared to 2.25 a year ago.

How It’s Relevant: Foreign exchange markets were fairly stable from 2013 until mid-2014. However, since that time wild currency swings are playing out around the globe and this impacts companies’ financial statements, whether through the P&L (for foreign currency transactions) or equity (for foreign currency translations). It is important that companies and their auditors to refresh their knowledge of the accounting for foreign currency under both U.S. GAAP (ASC Topic 830) and IFRS (IAS 21). We’ve posted a blog post to get you started!

Rattled by Currency Shake Ups, More Companies Turn to Hedging (August 24, 2015) – The CFO Journal (@CFOJournal)

Currencies of emerging markets are getting “crushed,” but other currencies are experiencing sharp volatility as well. For example, the Canadian dollar recently sank to a new 11-year-low against the U.S. dollar. As a result, 89% of corporate executives at small and medium-sized companies expected to hedge their currency risk this year at least as actively as they did last year, according to a survey of more than 400 global executives by foreign-exchange adviser AFEX. This figure is up from 50% who said they would be hedging currency volatility last year.

How It’s Relevant: Hedging foreign currency exposures, especially given current volatility, is smart business practice. However, qualifying for hedge accounting under U.S. GAAP is not so straightforward. Frankly, we’ve seen many companies doing it WRONG, thinking they can just add up all their net foreign currency exposure on a consolidated basis, enter into one derivative, and qualify for hedge accounting. As Lee Corso says, “Not so fast my friends!” Such hedging falls under the requirements for intra-entity derivatives (and use of a central treasury function) within ASC Section 815-20-25 and is complex stuff.

Mid-tier Firms Avoid Listed Audits as High Regulatory Fees Bite (August 17, 2015) – Accountancy Age (@AccountancyAge)

A recent assessment by the Financial Reporting Council (FRC) found that almost one in 20 accountancy firms registered to audit company accounts in the U.K. have quit that line of work in the past year. Why? Additional inspection requirements and fees levied by regulators, as well as an increase in the internal resources required to perform audits of listed companies. Quite simply, smaller accounting firms are getting “squeezed” out of the marketplace, as it does not make economic sense to “dabble” in public company audits.

How It’s Relevant: Although this article relates to accounting firms in the U.K., the issues are the same in the U.S. For example, the new requirements for auditors of broker-dealers (i.e. that they perform their audits in accordance with PCAOB standards), has many regional accounting firms questioning whether or not they want (or can afford) to continue to serve as auditors to these clients. They simply don’t make enough in fees to cover the additional cost and risk. For example, the recently published PCAOB annual report on the inspections of broker-dealer auditors showed an 87% deficiency rate in such audits. If your firm does decide to continue servicing these clients, proper training regarding the requirements is an absolute necessity (as well as an increase in fees).

Most U.S. Firms Can’t Find Source of ‘Conflict Minerals’ (August 20, 2015) – CFO.com (@cfo)

Two-thirds of public companies that are subject to the U.S. government’s “conflict minerals” disclosure rule were unable to determine where their conflict minerals came from, according to a report by the Government Accountability Office (GAO). The rule, mandated by the Dodd-Frank financial reforms, was intended to help determine whether public companies’ supply chains contain even traces of conflict minerals (gold, tin, tungsten, and tantalum) thought to finance or benefit armed groups in Africa. Furthermore, only 4% of companies reported that their conflict minerals came from the African countries covered by the rule.

How It’s Relevant: According to the Wall Street Journal, “the findings illustrate the challenges companies face in keeping tabs on all the players and materials in their global supply chains.” However, the U.S. Court of Appeals for D.C. reaffirmed its prior decision stating the portions of the SEC rule violated the First Amendment. Regardless, much of the regulation remains intact and companies must continue to conduct due diligence and report to the SEC, at considerable costs. According to research by Tulane University, companies spent nearly $700 million and six million staff hours last year to comply with the rule. Money well spent based on the GAO report…not!

SEC Joins German Investigation of Ford: Source (August 18, 2015) – Reuters (@Reuters)

The Securities and Exchange Commission (SEC) is helping German prosecutors to investigate the alleged payment of bribes by Ford to speed the passage of containers through Russian customers. Ford and Schenker, the freight business of state-owned German rail company Deutsche Bahn, have been under investigation since 2013 over suspected bribery and other offenses related to the busy Russian port of St. Petersburg.

How It’s Relevant: It seems that every week there is yet another article about a multinational company paying bribes to foreign officials and, as a result, running afoul of the requirements of the FCPA. People, this rule is not new! Paying bribes may be how things “get done” in certain countries, but they are ILLEGAL. Don’t risk your or your company’s reputation. We have posted an FCPA compliance primer to refresh your understanding of the requirements of this rule and keep you out of jail!  

Foreign Exchange Training Slides

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