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.

A Principal? Or an Agent? FASB Proposal Aims to Clarify (August 31, 2015) – The Journal of Accountancy (@AICPA_JofA)

The FASB recently proposed changes to the new revenue recognition standard meant to clarify how to determine whether an entity is a principal or an agent in a contract. ASC Topic 606 states that an entity is a principal if it has promised to provide a good or service to a customer. However, if an entity has promised to arrange a good or service to be provided to a customer by another party, then the entity is an agent. This determination is based on whether the entity controls the good or service before it is transferred to the customer; ASC Topic 606 includes indicators to assist in this evaluation. Constituents raised concerns to the Transition Resource Group (TRG) that more guidance was needed. This article provides an overview of the FASB proposals in response to these concerns.

How It’s Relevant: Determining whether an entity is a principal or an agent does not impact net income, but it does affect the amount of revenue reported by a company and whether or not this revenue should be shown gross or net. This is a very important issue for many companies today - think Uber and Groupon, just to name a few. This article also demonstrates the importance of keeping up with the decisions of the TRG as companies are transitioning to the new revenue recognition standard, a standard that impacts more than just revenue, as we discuss in this blog post.

Is comScore’s Revenue Growth as Good as It Seems? (August 31, 2015) – The Wall Street Journal (@WSJ)

Companies that show revenue growth are much sought after by investors, but not all revenues are created equal! For example, Internet analytics company comScore recently reported second-quarter revenue of $91.4 million, up 14% from a year earlier. However, $10.8 million of it was “non-monetary” revenue related to exchanging data with other companies. comScore reported these “data swaps” as revenue, recorded at fair value. If these transactions were excluded, the company’s revenue only grew by 3%.

How It’s Relevant: Remember when Internet companies in the “dot com days” were swapping advertising with other Internet companies? Neither company was making money, but that didn’t matter. Their stock prices soared based on expectations of revenue growth. And they pumped up their revenues, like Hanz and Franz, with these types of transactions. The FASB stepped in with guidance for non-monetary transactions found within ASC Topic 605, stating these transactions generally should be recorded at the estimated fair value of the assets surrendered only if they have “commercial substance.” Auditors should review these types of transactions very carefully, substantiating both the commercial substance of the transaction and the estimated fair value provided by the company.

Economic Uncertainties in the U.S. Keeping CFOs Up at Night (August 25, 2015) – Grant Thornton LLP (@GrantThorntonUS)

According to a survey by Grant Thornton LLP, CFOs are relatively optimistic about the future, but remain cautious in the face of domestic uncertainties like Congressional inaction on tax reform. More than half of the CFOs say uncertainty in the U.S. economy is a major concern that could impact their businesses’ growth in the next 12 months. Cyber security is also a major source of concern for these leaders, as are regulatory and compliance burdens.

How It’s Relevant: Companies must disclose such risks in the company’s MD&A, which auditors must read, and ensure it is consistent with the financial information they have audited. However, auditors would also be wise to read this report to understand the risks faced by companies, information they should consider in their own risk assessment they must perform prior to beginning their audit procedures, and continually reassess during the audit.

Board Perspectives: Risk Oversight – The Most Important Risks for 2015 (August 2015) – Protiviti (@Protiviti)

North Carolina State University ERM Initiative and Protiviti have completed the latest survey of C-level executives regarding the macroeconomic, strategic, and operational risks their organizations face. This report notes the top 10 risks companies face in 2015, which are different than those noted in the 2014 survey. Topping the list in both years were regulatory changes and heightened regulatory scrutiny, which may affect the manner in which a company’s products or services are produced or delivered. The number 2 risk in both years related to the economy not being sufficiently robust to provide growth.

How It’s Relevant: It’s hard for companies to effectively mitigate the first two risks on the lists as they kind of rely on the government for those. However, the next one is something companies can, and should, be addressing. The most significant change from 2014 related to the risk from cyber threats, which rose from number 6 in the 2014 to number 3 this year. It seems like every day there is another story of a retailer or the IRS – or maybe even a website centered on infidelity – getting hacked. What is your organization doing to address the risk posed by cyber threats? Are auditors appropriately addressing it in their audits? In the era of “big data”, this risk is a real and present threat to companies worldwide.

Investors, Audit Committees Want Auditors to Expand Scope of Assurance: Deloitte Survey (September 1, 2015) – Deloitte (@DeloitteUS)

More than half (59%) of financial statement users seek more from the audit profession to address the growing demands of the capital markets, according to a survey from Deloitte & Touche LLP, “Audit of the Future”. “Many investors are looking for broader and deeper insights that can help them make smarter, more informed decisions,” notes Joe Ucuzoglu, chairman and CEO of Deloitte & Touche LLP and leader of Deloitte’s audit practice. Users are requesting that the audit profession be more proactive in addressing evolving demands, as well as believe that auditors should use advanced technologies more extensively in the performance of their procedures.

How It’s Relevant: The good news is that more than two-thirds of respondents agree that the audit profession is fundamental to maintaining confidence in the capital markets. The bad news is that it appears as if our gig opining on history is up! Investors, audit committee members, and financial statement preparers all agree that auditors should provide assurance on information beyond traditional financial statements, such as earnings releases, investor presentations, and risk factors. Mr. Ucuzoglu sums up the importance of this article quite well when he says, “To deliver the most value, the audit profession must rapidly transform itself. This will require significant investments, and a mindset that is bolder than the public accounting profession has historically been known for.” Are firms and CPAs ready for the challenge of being an auditor in the 21^st century?