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.

Information About 2015 Inspections (October 1, 2015) – PCAOB (@PCAOB_News)

The Public Company Accounting Oversight Board (PCAOB) published a staff inspection brief that highlights the objectives, focus, and scope of its ongoing inspections in 2015 of auditors registered with the PCAOB. This year, inspections will focus on the following three general areas across audit firms:

1. Auditing internal control over financial reporting (ICFR);
2. Assessing and responding to risks of material misstatement; and
3. Auditing accounting estimates, including fair value measurements.

How It’s Relevant: The focus areas are among the most common areas where inspectors found significant deficiencies in the past several years as we discussed in this blog post and, as such, have consistently been included in our audit training courses. The PCAOB brief suggests that auditors consider the following economic developments in their risk assessments, as each will also be a focus for inspectors:

• High pace of mergers and acquisitions activity
• Search for higher-yielding investment returns in a low interest rate environment
• Recent fluctuation in oil prices and its varying effects on the financial reporting risks of different industries

We would also add the strong dollar, volatility in foreign currency markets, and sluggish economies in emerging markets like China and Brazil to the PCAOB’s list!

Largest Multinationals Avoiding $90B in U.S. Taxes (October 6, 2015) – CFO.com (@cfo)

The articles states that many of America’s largest corporations maintain subsidiaries in offshore tax havens, enabling them to avoid an estimated $90 billion in federal income taxes annually. In total, Fortune 500 companies are holding an accumulated $2.1 trillion in profits offshore according to a study released by The Center for Tax Justice and the U.S. Public Interest Research Group Education Fund. Authors of the study claim that companies are using “accounting tricks to pretend for tax purposes that a substantial portion of their profits are generated in off-shore tax havens.”

How It’s Relevant: With all due respect to the authors of the study, that is hogwash! Companies are not using “accounting tricks,” but rather following laws outlined in the Internal Revenue Code and accounting requirements found within ASC Subtopic 740-30 (previously referred to as the “APB 23 exception”). Specifically, these companies are not accruing deferred taxes on the earnings of foreign subsidiaries because they are claiming, and presumably satisfying their auditors, that these earnings will be reinvested indefinitely or remitted in a tax-free liquidation. However, these rules are complex. Even contemplating repatriating these funds can cause serious tax consequences as discussed in this blog post. Furthermore, the “accounting tricks” referred to by the author most likely relate to intercompany tax allocations, which can also be challenged by tax authorities. This brings up another “hot topic,” specifically accounting for uncertain tax positions. Confusing stuff for sure!

Accounting for Income Taxes – Quarterly Hot Topics (October 5, 2015) – Deloitte Accounting (@DeloitteAcctg)

The latest issue of Accounting for Income Taxes: Quarterly Hot Topics discusses several important accounting and tax law developments and the implications as it relates to ASC Topic 740 Income Taxes.

How It’s Relevant: I love the idea of a publication dealing with quarterly hot topics and income taxes is always sizzling! As if on cue with the previous article, this publication assists companies with properly accounting for income taxes in accordance with ASC Topic 740 and navigating the myriad of tax law developments, which is no easy task!

SEC Charges Former Tech Execs With Accounting Fraud (October 6, 2015) – Accounting Today (@AccountingToday)

The Securities and Exchange Commission (SEC) has charged two former executives at OCZ Technology Group Inc. for accounting failures. The SEC alleges that OCZ’s former CEO engaged in a scheme to materially inflate OCZ’s revenue and gross margins from 2010 to 2012. It also charges the former CFO for certain accounting, disclosure, and internal accounting controls failures. OCZ is now part of Toshiba, which also had an accounting scandal earlier this year, although these charges appear to be unrelated.

How It’s Relevant: This scandal mirrors many accounting scandals of the past, with the main theme being fraud and improperly recognizing revenue in accordance with ASC Topic 605 and SEC Staff Accounting Bulletin No. 104 (SAB 104). Specifically, according to the SEC’s complaint, the company allegedly:

• Mischaracterized sales discounts as marketing expenses by having employees create false documentation to conceal the scheme;
• Engaged in channel-stuffing by shipping more goods to its largest customer than the customer could sell in the normal course of business; and
• Concealed large product returns from OCZ’s finance department and external auditors so those returns would not be recorded in the books and records.

Other transactions not accounted for in accordance with U.S. GAAP included:

• Reclassifying COGS as R&D expenses without sufficient basis for doing so;
• Failing to capitalize labor and overhead costs in inventory costs;
• Recognizing revenues upon product shipment rather than upon delivery of the product to customer; and
• Understating accruals for product returns.

My question: Where were the auditors? If you were the auditor, how could you have uncovered this scandal?

Blackstone in $39 Million SEC Settlement (October 7, 2015) – The Wall Street Journal (@wsj)

Blackstone Group LP agreed to pay about $39 million to settle SEC charges over certain fee practices. Specifically, the SEC said the firm failed to sufficiently disclose to its fund investors details about big one-time fees Blackstone collected from companies it sold or took public, as well as discounts the firm received on some legal fees that weren’t passed on to investors.

How It’s Relevant: The settlement follows KKR & Co.’s agreement in June to pay almost $30 million to settle charges that it improperly allocated expenses, hurting some investors while benefiting the firm’s executives and certain clients. According to the SEC statement, “Our clear message to the entire private-equity industry is that this is an area of great risk, and that whatever the success of the fund over time, hidden or inadequately disclosed fees will not be tolerated regardless of the size of the adviser.” Although these fee practices may have been commonplace in the past, the Dodd-Frank Act required private-equity funds to register with the SEC. It’s a new day and the SEC is watching (your disclosures)!