GAAP Flash – Non-GAAP measures, FCPA Violations and ASC 740 – 01.27.17
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GAAP Flash – Non-GAAP measures, FCPA Violations and ASC 740 – 01.27.17

This week’s GAAP Flash features a regulatory flair, including articles about non-GAAP measures, FCPA violations, and accounting for income taxes under ASC 740 to help increase business acumen of CPAs.

Investor group weighs trade-offs in non-GAAP measures (January 20, 2017) – Accounting Today (@AccountingToday)

The CFA Institute recently published a report evaluating the controversy of non-GAAP measures used in financial reporting, an area of recent focus from the Securities and Exchange Commission. The report found that non-GAAP measures have been a core part of reporting for years; however, the prevalence of these measures in financial reports continues to rise. One analysis by Audit Analytics determined that 96 percent of S&P 500 companies used at least one non-GAAP measure in earnings releases during the fourth quarter of 2016, up from 88 percent during the third quarter of 2015! The rise in frequency of using these measures as well as the type of adjustments being made to arrive at non-GAAP measures concern many investors.

How It’s Relevant: The SEC is not alone when worrying about the impact that non-GAAP measures have on the way a company presents its financial condition! Investors also cite troubles or concerns when evaluating the way non-GAAP measures illustrate an accurate financial picture. At the end of the day, the financial statements are created to be used by investors for sound decision-making. If they start to question the validity of certain numbers, isn’t it time for companies to listen?

The FCPA in 2016: Analyzing the Numbers (January 23, 2017) – Wall Street Journal (@WSJ)

Enforcement actions related to FCPA violations spiked in 2016, as the SEC initiated 32 cases and the Department of Justice brought 24 cases. These figures are the highest since 2010 and correspond with another dramatically increased number: monetary sanctions. Total sanctions rose to over $2.6 billion with a per-action average of about $90 million, both of which are the highest since 2008.

How It’s Relevant: Don’t violate the law; it’s really that simple! It also seems like the regulatory bodies that care about the FCPA have upped their scrutiny of these types of transactions. This focus may change under new administration, but it’s still a good idea to keep yourself clear of the red tape and monetary fines.

Shipping Conglomerate and Former CFO Charged With Failure to Recognize Hundreds of Millions in Tax Liabilities (January 23, 2017) – U.S. Securities and Exchange Commission (@SEC_News)

The SEC recently charged shipping conglomerate Overseas Shipholding Group (OSG) due to its failure to recognize more than $500 million of tax liabilities. These liabilities accumulated over a 12-year period during which a controlled foreign subsidiary, Overseas International Group Inc., effectively acted as a guarantor under OSG’s credit agreements. This provision triggered current and deferred tax liabilities under the Internal Revenue Code.

How It’s Relevant: Accounting for income taxes rears its head in lots of places, including debt agreements. It’s important to remember that the regulations under the Internal Revenue Code may reflect financial statement implications. When getting involved with complicated foreign transactions, brush up on your knowledge of ASC 740 to make sure you aren’t missing anything!

BT European chief to resign over Italian scandal (January 24, 2017) – BBC News (@BBCWorld)

Improper accounting practices will likely force the resignation of chief executive Corrado Sciolla, who heads BT’s Continental European operation. BT will write down more than 500 million GBP of value in its Italian unit due to a “complex set of improper sales, purchases, factoring and leasing transactions” that persisted for multiple years. Share prices plunged more than 20% after the news broke.

How It’s Relevant: Yikes! It sounds like a tangled web of complex, and ultimately fraudulent reporting, had a huge impact on this company. Complicated areas of accounting deserve more scrutiny and oversight than others, and these places definitely need a more robust system of internal control to make sure the right thing is done.

Disclaimer
This post is published to spread the love of GAAP and provided for informational purposes only. Although we are CPAs and have made every effort to ensure the factual accuracy of the post as of the date it was published, we are not responsible for your ultimate compliance with accounting or auditing standards and you agree not to hold us responsible for such. In addition, we take no responsibility for updating old posts, but may do so from time to time.

How well do you know SEC Rules
 
Shades of Gray with the FCPA

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