This week’s GAAP Flash includes articles about the focus of 2016 PCAOB inspections, FCPA fines, amendments to SEC disclosure requirements, and other accounting news provided to help increase business acumen of CPAs.

PCAOB Issues Staff Inspection Brief Detailing Scope and Objectives of 2016 Inspections of Auditors of Public Companies (July 14, 2016) – PCAOB (@PCAOB_News)

The Public Company Accounting Oversight Board (PCAOB) today issued a Staff Inspection Brief detailing the scope, focus, and objectives of its ongoing 2016 inspections of auditors of public companies and other issuers. The Staff Inspection Brief can be found here. “The information in this brief may help audit firms, investors, and others better understand the risk-based factors that the PCAOB considers when inspecting audits,” said Helen Munter, PCAOB Director of Registration and Inspections.

How It’s Relevant: In addition to macroeconomic factors such as the significant appreciation in the U.S. dollar index, the PCAOB continues to focus on areas where inspectors have found frequent and recurring deficiencies in recent inspections as we discussed in this post. For an in-depth review of these areas and steps firms can take to prevent these deficiencies from occurring, download our free, comprehensive eBook Learn from PCAOB Inspection Reports: Your Prescription for Better Audits.

PCAOB Issues Staff Inspection Brief Detailing Scope and Objectives of 2016 Inspections of Auditors of Broker-Dealers (July 14, 2016) – PCAOB (@PCAOB_News)

The PCAOB today issued a staff inspection brief detailing the scope, focus, and objectives of its ongoing 2016 inspections of auditors of brokers and dealers. The Staff Inspection Brief can be found here. “These staff inspection briefs may help audit firms, investors, and others better understand how our inspectors approach reviews of audits,” said Helen Munter.

How It’s Relevant: The 2016 inspections of auditors of broker-dealers are focusing on audit areas and attestation procedures where inspectors previously found deficiencies, as well as auditor independence and engagement quality review. We discussed these focus areas in this post. PCAOB inspectors are also reviewing the audit work for related party transactions to evaluate compliance with the newly updated Auditing Standard 2410 (AS 18).

Johnson Controls Pays $14.4 million to End SEC Bribery Probe (July 11, 2016) – Reuters (@ReutersBiz)

Johnson Controls agreed to pay $14.4 million to settle U.S. regulatory charges that its workers bribed Chinese shipbuilders and shipyards, including some owned by the Chinese government, to win business and enrich them personally. Of course, this violates the provisions of the federal Foreign Corrupt Practices Act (FCPA), hence the charges by the Securities and Exchange Commission (SEC). Luckily, the U.S. Department of Justice declined to bring related criminal charges, as a result of the company’s decision to voluntarily report the misconduct. Honesty is always the best policy!

How It’s Relevant: In this post, we discussed the requirements of the FCPA and how non-compliance can lead to fines and penalties. Perhaps Johnson Controls could have prevented this embarrassing news if their personnel took our FCPA primer and quiz Shades of Gray with the FCPA!

SEC Proposes Amendments to Update and Simplify Disclosure Requirements As Part of Overall Disclosure Effectiveness Review (July 13, 2016) – SEC News (@SEC_News)

The SEC voted to propose amendments to eliminate redundant, overlapping, outdated, or superseded provisions. The Commission is also soliciting comments on certain SEC disclosure requirements that overlap with U.S. GAAP to determine whether to retain, modify, eliminate, or refer them to the FASB for potential incorporation into U.S. GAAP. “We are keenly interested in investors’ views on all aspects of the proposal and look forward to receiving their input as we continue to consider changes and enhancements to our disclosure requirements,” said Mary Jo White, SEC Chair. The public comment period will remain open for 60 days following the public release in the Federal Register.

How It’s Relevant: As we discussed in this post, a prevalent theme at the 2015 AICPA National Conference on Current SEC and PCAOB developments was the ongoing initiative to make financial statement disclosures more effective. We believe this initiative is long overdue!

Accounting Choices Blur Profit Picture (June 28, 2016) – WSJ CFO Journal (@CFOJournal)

Use of non-GAAP financial measures by companies is on the rise. Last year, less than 6% of the companies in the S&P 500 reported their financial results exclusively using U.S. GAAP. That’s a sharp decline from 25% in 2006, according to research firm Audit Analytics. And it’s helping paint a rosier financial picture! According to new research by Calcbench, Inc., use of non-GAAP financial measures can inflate income by as much as 44% at profitable companies.

How It’s Relevant: This isn’t the first time we’ve talked about non-GAAP financial measures. In this post, we walked through what is considered a non-GAAP financial measure, how use of these measures is on the rise, and how regulators are taking notice. Disclosure of non-GAAP financial measures is permitted, provided certain rules are followed. Most companies disclose these measures to give investors additional insight. However, according to KPMG partner David Middendorf, “There are certainly companies that use non-GAAP measures to tell a different story than maybe what the real story is!”

According to Wesley Bricker, SEC deputy chief accountant, “Audit committees should be paying close attention to the non-GAAP measures a company presents, including the required related disclosures, and the processes it follows to consider both the appropriateness and reliability of the measures.” Luckily, the Center for Audit Quality (CAQ) recently released a new publication intended to help audit committees determine whether non-GAAP financial measures give investors meaningful financial information.