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.

BDO to Pay $2.1 Million to Settle SEC Charges Over False and Misleading Audit Opinions (September 9, 2015) – Accounting Today (@AccountingToday)

BDO USA has agreed to pay $2.1 million to settle charges from the Securities and Exchange Commission (SEC) that the firm dismissed a number of red flags and issued false and misleading unqualified opinions about the financial statements of a staffing services company, General Employment Enterprises. The SEC also charged the engagement partner, concurring reviewer, and three partners in BDO’s national office for their roles in the deficient audits. All agreed to settle the charges against them.

How It’s Relevant: The “red flag” in this instance were funds that went “missing” for a period of time, supposedly invested in a CD. The issue was noted by BDO and the funds returned, but it was never adequately explained to the engagement team nor BDO’s national office. Nevertheless, BDO issued an unqualified opinion anyways. “Audit firms must train their audit and national office professionals not only to recognize red flags but also to have the resolve to refuse signing off on an audit if there are unresolved material issues,” said SEC enforcement director Andrew Ceresney. Accounting firms can and should provide adequate accounting and auditing training to their professionals, but unfortunately, you can’t teach resolve!

It’s Time to Start Paying Attention to Bank Deposits Again (September 9, 2015) – Bloomberg Business (@business)

Under old regulatory rules, bank deposits were rather straightforward. However, under the new Basel III rules, things are more complicated. Banks now have two types of bank deposits: operating and non-operating. Operating deposits are considered “sticky” in that they are unlikely to be suddenly pulled from the bank. Non-operating deposits, on the other hand, are classified as a form of short-term wholesale funding that has the potential to rapidly evaporate. Under Basel III, banks need to hold a buffer of ostensibly high-quality liquid assets (HQLA) to cover non-operating deposits and protect themselves from a funding run.

How It’s Relevant: As a result of the requirement to hold bigger HQLA reserves, banks reluctant to accept non-operating deposits. As noted by the WSJ, banks are urging some of their largest customers in the U.S. to take their cash elsewhere or be slapped with fees, citing new regulations that make it onerous for them to hold certain deposits. However, customers may flee bank deposits anyways if (or when) the Fed decides to raise interest rates. Banks are currently modifying their systems and building models to estimate the volume and behavior of customer deposits caused by these two factors and model risk abounds. We don’t know what will happen, but we do know that additional regulation comes with a price, through increased costs that will ultimately be passed on to the consumer. Consumers also will have less options to shop their banking services as many of the smaller community banks have gone or will go out of business under the ever increasing regulatory burden.

Recent Topics of Interest for Audit Committees (September 11, 2015) – Deloitte Risk & Compliance (@DeloitteRisks)

Deloitte notes the following recent topics of interest for audit committees:

• PCAOB notes improvements in internal control over financial reporting (ICFR) audits
• SEC proposes clawback rule
• SEC confirms scope of whistleblower protections
• New IIA Research Foundation report outlines imperatives for internal audit
• SEC approves CEO pay ratio disclosure requirements
• FASB simplifies inventory measurement
• IASB proposes clarifications to revenue recognition standard
• IAASB amends audit standards to enhance focus on financial statement disclosures

As part of Deloitte’s Insights series, providing information and resources to C-suite executives and board members, this article give a short summaries of each topic with links to learn more.

How It’s Relevant: Audit committee members need to fully understand the company and its operations; stay abreast of regulatory and reporting matters; and challenge management and the external auditors. This requires that they receive adequate training to do their jobs properly. However, do investors know all that audit committees do? Probably not, which is why there is a push for increased and enhanced disclosures to be provided by audit committees. The Audit Committee Collaboration, a partnership of nationally recognized U.S. corporate governance and policy organizations that work together to expand audit committee member access to useful tools and materials, have released Enhancing the Audit Committee Report: A Call to Action. This report is built on the premise that those with a stake in our financial markets should understand and have confidence in the audit committee’s work. The report includes examples of emerging, voluntary practices of strengthened audit committee disclosures, and cites studies that have examined recent trends in these practices. They also released a short video, “Call to Action,” explaining the work of audit committees, their importance in capital markets, and the push to expand audit committee disclosures.

Pay Attention to Nonfinancial Measures When Performing Audits (September 14, 2015) – Journal of Accountancy (@AICPA_JofA)

Of course auditors look at the numbers, but if they only look at financial data they may be missing some important clues to assist them in detecting fraud. Unfortunately, many CPAs overlook nonfinancial data as another tool in their arsenal to help them ferret out fraud. Douglas Prawitt, CPA, Ph.D., an accounting professor at Brigham Young University, says nonfinancial information “is just about anything that does not have a dollar sign in front of it. Auditors have access to a lot of nonfinancial information but they don’t always focus on it.”

How It’s Relevant: Examples of nonfinancial information that might be useful to auditors include a business’s square footage; amount of inventory; industry data; or number of patents, products, employees, or customer accounts. We agree with Dr. Prawitt who believes it is important for auditors to pay attention to nonfinancial measures and determine if there are any glaring inconsistencies between them and the companies’ financial measures. The article gives some good tips on how auditors might use nonfinancial measures in their audits.

Oil Patch Braces for Financial Reckoning (September 15, 2015) – The Wall Street Journal (@WSJ)

Energy companies have been borrowing and spending billions of dollars to pump oil, even as crude prices plummeted. However, experts believe the day of financial reckoning may be upon us. Smaller drillers are bracing for cuts to their credit lines in October as banks reevaluate how much energy companies’ oil and gas properties are worth. But with oil trading below $45 a barrel, bigger oil outfits are struggling to stay profitable. Al Walker, chief executive of Anadarko Petroleum Corp., one of the biggest oil companies in the U.S., recently told an audience at a Barclay’s energy conference, “Frankly at the end of the day, none of us have a great sense of where oil prices are going.”

How It’s Relevant: Obviously, if your audit client is an energy company, you need to be thinking about impairment issues and the risk of liquidity drying up. However, if your audit client loans money to, has receivables from, sells goods or services, to, or is in any way is associated with energy companies, you need to understand the impact that lower oil prices, which are expected to continue for some time, have on the financial statements. This article provides a good summary of the current market environment. As Ricky Bobby said in Talladega Nights, “Hang on baby Jesus, it’s about to get bumpy!”