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.

PCAOB Strikes Deal with Luxembourg (September 21, 2015) – Accounting Today (@AccountingToday)

The Public Company Oversight Board (PCAOB) has entered into a cooperative agreement with Luxembourg’s audit regulator relating to the oversight of audit firms subject to the regulatory jurisdictions of both regulators. With this agreement, the Luxembourg regulator and the PCAOB teams can now share their insights and jointly inspect audit firms. PCAOB Chairman James Doty said, “We have a shared commitment to improve audit quality and protect investors through cross-border cooperation.”

How It’s Relevant: Since the inception of its non-U.S. inspection program in 2004, the PCAOB has conducted inspections in 45 non-U.S. jurisdictions and, based on this article, the number of agreements it has with countries around the world is growing. Most audit firms in these countries are subject to triennial inspections since they provide audit reports for 100 or fewer issuers. That means, once every three years, the PCAOB and/or the local regulatory will be inspecting their work papers and assessing the quality of their audits. If the audit deficiency rates on U.S.-inspected firms are any indication, these foreign audit firms better be ready!

Audit Fees Jump Faster at Riskier Companies (October 8, 2015) – CFO Journal (@CFOJournal)

Firms with ineffective controls over financial reports tend to pay more than those who do a better job, according to a new report by the Financial Executives Research Foundation. Companies registered with the Securities and Exchange Commission (SEC) paid a median audit fee of $402,812 last year. But for about 21% of companies that reported ineffective controls over financial reporting, the median increase in audit fees was three percentage points higher than the median increase for all companies.

How It’s Relevant: Although the main finding in this article should come as no surprise, it is important for companies to realize their ineffective controls are costing them real money in the form of increased audit fees. For auditors, the question I have is, are the additional audit fees charged to these companies enough to compensate for the extra audit work required by engagement teams and risk undertaken as a result of their ineffective controls? Should you actually be charging more? The other interesting statistic is that 1 in 5 companies registered with the SEC actually have ineffective controls over financial reporting, which gives me a lot of confidence as an investor.

Select Auditing Considerations for the 2015 Audit Cycle (October 12, 2015) – Center for Audit Quality (@TheCAQ)

The Center for Audit Quality (CAQ) has published a member alert that can help public company audit firms address potential risks in a proactive and accelerated manner. The alert, Select Auditing Considerations for the 2015 Audit Cycle, reminds member firms of important auditing considerations for the 2015 audit cycle. It identifies and discusses some of the more judgmental or complex audit areas, many of which are also included in the PCAOB Staff Inspection Brief published in October 2015.

How It’s Relevant: If you audit public companies, this CAQ Alert is a “must read.” The potential risk areas identified in the Alert should definitely be a part of your annual training to ensure your engagement teams are up-to-speed in the following areas:

• Professional skepticism
• Internal control over financial reporting (ICFR)
• Risk assessment and audit planning
• Supervision of other auditors and multi-location audit engagements
• Testing issuer-prepared data and reports
• Cybersecurity
• Revenue recognition
• Auditing accounting estimates, including fair value measurements
• Related parties and significant unusual transactions

This listing of audit considerations would actually make for a good 1-day training agenda for your professionals as it represents the most common recent inspection findings by the PCAOB. While the CAQ member alerts highlight certain areas for consideration, they should not be relied upon as definitive or all-inclusive, and should be read in conjunction with the applicable rules, standards, and guidance in their entirety.

PCAOB Report Encourages Auditors to Take Action in Response to Risk Assessment Deficiencies Identified in Inspections (October 15, 2015) – PCAOB (@PCAOB_News)

The PCAOB issued a report detailing significant deficiencies in registered audit firms’ implementation of and compliance with certain auditing standards related to the auditor’s assessment of and response to risk in an audit as observed during 2012-2014 inspections. There are eight standards that address procedures, performed at all stages of the audit, that relate to risk assessment:

• AS No. 8, Audit Risk
• AS No. 9, Audit Planning
• AS No. 10, Supervision of the Audit Engagement
• AS No. 11, Consideration of Materiality in Planning and Performing an Audit
• AS No. 12, Identifying and Assessing Risks of Material Misstatement
• AS No. 13, The Auditor’s Response to the Risks of Material Misstatement
• AS No. 14, Evaluating Audit Results
• AS No. 15, Audit Evidence

See our blog post detailing the type of deficiencies noted by the PCAOB during its 2012 and 2013 inspections.

How It’s Relevant: Although audit deficiencies related to audits of internal controls over financial reporting (ICFR) represent the single largest deficiency area, when taken together, the cumulative deficiency rate related to all the risk assessment standards actually rank higher. “Because risk assessment underlies the entire audit process, it is critical that audit firms address these findings of weaknesses in compliance with risk assessment standards,” said PCAOB Chairman James Doty. Audit firms should ensure their engagement teams are properly applying and documenting their compliance with the risk assessment standards. They might even consider a specific training in this area because the PCAOB will definitely be looking into risk assessments during their upcoming inspections.

Audit Deficiencies Linked to M&A Surge (October 16, 2015) – CFO.com (@cfo)

It’s all over the news – M&A deals are on the rise. And guess what? Audit deficiencies related to M&A deals are also on the rise based on an analysis of recent PCAOB inspection reports. Consulting firm Acuitas in its 2015 Survey of Fair Value Audit Deficiencies noted that 49% of fair value-related audit deficiencies in 2013 were attributable to business combinations, up from 45% in 2012.

How It’s Relevant: Accounting for business combinations in accordance with ASC Topic 805 is no small task and neither is auditing them. This standard, among other things, requires you to identify intangible assets, regardless of whether or not they were previously recorded by the acquiree, if they are separable or arise from contractual or legal rights. However, identifying them is just one issue. Once identified, they need to be recorded at fair value in accordance with fair value measurement guidance within ASC Topic 820. PCAOB inspection reports identified audit deficiencies ranging from failing to properly test data on cash flow projects and improperly testing management’s techniques for valuing assets, to sometimes failing to detect intangible assets that needed to be assigned a value.