This week’s GAAP Flash covers everything from recent SEC charges brought against a large accounting firm, increased disclosure regarding the relationship between the auditors and the audit committee, how Dodd-Frank may or may not soon see changes under a Trump Presidency, and changes coming soon from the IASB.

SEC Gets Admission of Wrongdoing from Accounting Firm over Misleading Opinion (September 10, 2016) – MarketWatch (@MarketWatch)

Earlier this week, the SEC charged the world’s 6^th largest accounting firm, BDO, with issuing a misleading unqualified audit opinion for one of its clients, General Employment. This is the first time in quite a while that the SEC has sanctioned an accounting firm for something other than independence. Not only that, but this marks the first time that a public accounting firm has ever actually admitted to wrongdoing in their audit procedures!

How It’s Relevant: Being charged by the SEC can obviously be a damaging and costly event. In this case, BDO had to pay disgorgement of its audit fees of approximately $600,000 and also pay a $1.5 million penalty. But it’s important to remember that the SEC is not the only regulatory body who can police the auditors! The PCAOB can also sanction auditors and audit firms. In fact, while this is the first time (recently) that the SEC has busted an audit firm for something other than independence, the PCAOB has several recent examples. Want to learn more about areas that the PCAOB focuses on during its inspection process? Check out our eBook!

Audit Committees Shed More Light on Auditor Oversight (November 1, 2016) – Accounting Today (@AccountingToday)

Speaking of audit quality, earlier this month, the Center for Audit Quality (CAQ) and Audit Analytics released a new document, the 2016 Audit Committee Transparency Barometer. What does the report show? Well, for starters, it shows double-digit growth in the percentage of S&P 500 companies choosing to disclose information about the interaction between their audit committees and the auditor, especially where a few areas are concerned:

• External auditor appointment
• Tenure of audit firm engagement
• Engagement partner selection
• Engagement partner rotation
• Evaluation criteria of the external audit firm

How It’s Relevant: As regulators continue to place pressure on the auditors to increase their audit quality, you can expect more scrutiny by regulators and also by the audit committee. The SEC is pressuring companies’ audit committees to be more involved in the selection of, interaction with, and oversight of their external auditors. On the flip side, the auditors are also getting pressured to have higher quality interactions with the audit committees from their regulators, such as the PCAOB. In fact, one of the more recently issued Auditing Standards was AS 16, Communications with Audit Committees.

SEC Widely Expected to Ease Post Crisis Rules During Donald Trump’s Administration (November 9, 2016) – The Wall Street Journal (@wsj)

One of the biggest pieces of legislative financial reform ever was introduced during President Obama’s tenure in office, The Dodd-Frank Wall Street Reform and Consumer Protection Act. The Dodd-Frank Act has had a significant impact on many financial services institutions. Any pieces of the Dodd-Frank Act not yet implemented may be subject to scale-back or even reversal under a Trump Presidency.

How It’s Relevant: While the Dodd-Frank Act has been a bit of a headache for many financial institutions to implement, it was created with the intention of protecting the public from another financial collapse like we saw in 2008. Mr. Trump and other republicans, however, have opposed aspects of the Act. Certain pieces not yet in place, for instance limits on trading positions on commodities like gold, may be subject to reversal. In fact, Mr. Trump could even pursue legislation to reverse already implemented provisions of the act, such as the Volcker Rule. For more on the Dodd-Frank Act, specifically what happens from an accounting perspective when companies are required to clear derivative contracts through a central counterparty, check out Bob’s blog post here.

Election Creates Very Real Possibility of Tax Reform (November 9, 2016) – Accounting Today (@AccountingToday)

With the shake-up in the election results this week for our next president and the Republicans keeping control of the House and the Senate, tax reform is now a very real possibility. One of those first changes could be a push to lower the corporate tax rate. Trump has initially proposed a fifteen percent rate, but there are other proposals in place that suggest a twenty-five percent tax rate. Other changes could include capping the capital gains tax rate, eliminating estate taxes, or lowering individual tax rates.

How It’s Relevant: The United States has one of the highest corporate tax rates in the world. And as a result, many U.S. business have been employing tax strategies to get their cash overseas and out of the hands of the U.S. government. How have companies been doing this? One way is the “APB 23 Exception,” that lets companies overcome the presumption that all undistributed earnings will be transferred to the parent entity, and no income taxes accrued, if sufficient evidence shows that the subsidiary has invested or will invest the undistributed earnings indefinitely or that the earnings will be remitted in a tax-free liquidation. You can read more about that here.

IASB Plans Revamp of Financial Term Definitions (November 2, 2016) – CFO (@CFO)

In an effort to make financial reporting easier for investors and other financial statement users to understand, the International Accounting Standards Board (IASB) is undertaking a project to redefine common financial terms, such as earnings before interest and taxes (EBIT). According to the IASB chairman, IFRS currently gives companies too much flexibility in defining terms, which makes it hard for investors to make comparisons across financial statements.

How It’s Relevant: Non-GAAP measures aren’t the only ones that have been under the microscope recently! Loosely defined IFRS terms have led to inconsistency in application and presentation in the financial statements, and users have requested more consistency and structure – and the IASB is listening! Want to know more about recent changes in the IFRS reporting environment? Check out our IFRS Update!