GAAP Flash! News For CPAs in Public Accounting - 11.20.15
GAAP Flash! News For CPAs in Public Accounting - 11.20.15

GAAP Flash! News For CPAs in Public Accounting - 11.20.15

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.

SEC Opens Crowdfunding to Small Investors (November 2, 2015) – CFO.com (@cfo)

In a major expansion of equity crowdfunding, the U.S. Securities and Exchange Commission (SEC) approved final rules allowing small investors to buy shares of private companies. Previously, crowdfunding had only been open to “accredited” investors meeting certain wealth criteria. According to Forbes, “This will open up a tremendous amount of capital to early stage companies.”

How It’s Relevant: Crowdfunding is the practice of funding a project or venture by raising money from a large number of sources, often using an online platform such as Kickstarter, Indiegogo, and Crowdfunder. Even prior to the new rules, crowdfunding was expected to surpass venture capital in 2016 at $34 billion. Awesome! What could possibly go wrong? First, these private companies do not have the financial systems or accounting experts available to public companies. Second, they certainly do not have the same levels of internal controls over financial reporting. Finally, like most start-ups, the majority of these businesses will fail. The statistics don’t lie! According to Andrew Stoltmann, a lawyer who specializes in securities fraud, “This is a disaster waiting to happen.”

CFOs Reveal Their Top Issues for 2016 (November 11, 2015) – CFO.com (@cfo)

Consulting firm Protiviti released its 2016 Finance Priorities Survey which captures financial executives’ top priorities for the upcoming year. The survey of 650 CFOs, vice presidents of finance, corporate controllers, and other financial management professionals noted the top priority for CFOs next year is margin and earnings performance.

How It’s Relevant: Auditors would be wise to understand the top priorities of finance executives and this information should drive their audit planning and risk assessments. Some of the other priorities noted:

  • Increasing efficiency and precision in cash forecasting, period-end closing, and reconciliation and consolidation activities
  • Providing more precise and real-time information with respect to strategic planning, risk management, budgeting, and performance management
  • Assessing risks related to and developing measures to prevent cyber attacks
  • Planning and forecasting related to income taxes and regulations

Perhaps consultants would be wise to study this survey as it sounds like a shopping list for consulting services!

SEC Comment Letters: What “Edgar” Told Us (November 13, 2015) – Deloitte Risk Journal (@DeloitteRisks)

Deloitte released SEC Comment Letters – Including Industry Insights: What “Edgar” Told Us. The publication is the ninth edition in the firm’s SEC Comment Letter series and includes extracts of frequently issued SEC staff comments, additional analysis, and links to resources that are relevant to SEC filers.

How It’s Relevant: Are you a financial statement preparer? Why not learn from others’ mistakes, improve the quality of your financial statements, and decrease SEC staff comments? The top 10 comment letter trends noted by Deloitte were:

  1. Management discussion and analysis (MD&A)
  2. Fair value measurement and estimates
  3. Revenue recognition
  4. Non-GAAP measures
  5. Signatures, exhibits, and agreements
  6. Income taxes
  7. Segment reporting
  8. Acquisitions, mergers, and business combinations
  9. PP&E, intangible assets, and goodwill
  10. Debt, warrants, and equity securities

Are you an auditor? The above listing is a pretty good “hit list” of where to focus your audit procedures!

SEC Chief Accountant: Auditors Need to Keep Improving (November 16, 2015) – Accounting Today (@AccountingToday)

Public company audits are improving according to SEC Chief Accountant James Schnurr. “Overall, I think audit quality is getting better,” Schnurr said, “but there’s room for improvement, and it’s important that firms stay committed to continuing to improve.”

How It’s Relevant: Audit deficiencies noted by the PCAOB have continued to increase over the past several years. Many in the general public may think audit quality is getting worse! However, we’ve always contended that there was a direct correlation between the number of deficiencies noted, the level of funding to the PCAOB, and the number of inspectors. James Schnurr agrees that some of the increase is due to the greater sophistication on the part of inspectors. That being said, he warned the importance of auditors to “meet their professional obligations,” especially as it relates to independence in the wake of increasing consulting and advisory practices at many of the larger firms.

Reasons to Worry as Fed Rate Rise Looms (November 19, 2015) – Financial Times (@FT)

The Federal Reserve appears to be ready to increase interest rates and investors have reason to worry. The article cites five concerns investors should consider in the wake of a rise in interest rates:

  1. Decrease in corporate profits
  2. Stagnant revenue growth
  3. Rise in credit spreads
  4. Use of “cheap money” to engage in share buybacks and mergers
  5. Increase in default rates

How It’s Relevant: It’s (unofficially) official – the Fed will most likely raise interest rates before the end of the year. Since the recession, companies have been “living it up” on near zero interest rates, but the “hangover” is coming! Auditors should consider the impact of rising interest rates on their audit clients during the audit planning and year-end risk assessments.

accounting and auditing update

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