This week’s GAAP Flash discusses recent accounting fraud, the future of Dodd-Frank, including the upcoming pay ratio disclosures, and how Trump’s tweets (among other topics) may impact annual shareholder meetings.

As Regulations Change, Companies Grapple with Accountant Shortage (March 6, 2017) – The Wall Street Journal (@wsj)

With three new major accounting standards to implement in the next few years, companies are facing an issue: a shortage of qualified accountants to help implement and manage that change. This article talks about the problems large corporations are having finding accountants to fill their roles. So, where are all the CPAs? Well, most of them are still at the accounting firms. The Big Four firms have undertaken major efforts to improve their retention numbers, which results in fewer CPAs going into industry. But that doesn’t mean it’s all good news for the accounting profession. In an article published by the same author the very next day, the WSJ highlights that many of the more “mundane” tasks performed by accountants are being outsourced to software programs. And in fact, while the Big Four firms are bettering their retention rates, they’re lowering the number of new hires because of technological advances.

How It’s Relevant: With the new revenue recognition standard (ASC Topic 606), the new leasing standard (ASC Topic 842), and the new financial instruments standard (ASC Topic 326), accounting firms and companies alike are looking for accountants in the know! Use your knowledge of these changes to differentiate yourself from your CPA peers and make the next move in your career. If you need to get up to speed on these new standards, you can check out our free revenue recognition eLearning, read our series of blogs on the new leasing standard, or attend our Essential Accounting and Auditing Update course to learn more about the new financial instrument standard.

And, by the way, if you happen to be a CPA looking for a way to make a positive impact and spread the passion you have for accounting, check our current job openings!

Mexican Homebuilder Charged in $3.3B Accounting Fraud Exposed by Satellite Images, SEC Says (March 3, 2017) – Accounting Today (@AccountingToday)

Desarrolladora Homex S.A.B de C.V. (Homex), one of the biggest homebuilders in Mexico, is under fire from the SEC for allegedly inflating its revenue by 355%, or approximately $3.3 billion dollars. How did they do it? Basically, by claiming to have sold and built homes that never actually existed. The SEC used satellite imagery to prove that Homex had never constructed the homes it purported to have sold. In fact, Homex inflated its homes-sold number by a staggering 317%! Homex, which is now under new ownership, has agreed to settle with the SEC. As part of that settlement, the SEC has barred Homex from offering securities in U.S. markets for at least 5 years.

How It’s Relevant: While you may be wondering how their auditors could have missed the company inflating revenue by 355%, we have all seen enough of these headlines to know that this is not an isolated event. While obtaining the “paper trail” for sales is a necessary audit procedure, it is best practice for auditors to take a fresh look at their audit procedures to prevent management from knowing what to expect each year. For instance, in this case, site visits to inspect the units sold or for sale could have helped to uncover the fraud. Auditors need to remain professionally skeptical and consider where management may have pressure, opportunities, or rationalization to commit fraud.

On the Board’s Agenda: Preparing for the New CEO Pay Ratio Disclosure Requirement (March 8, 2017) – Deloitte Risks (@Deloitte Risks)

Part of the final rules issued in 2015 as part of Dodd-Frank Wall Street Reform and Consumer Protection Act were the so-called pay ratio rules. These rules require public companies to disclose the various pay ratios, including the gap between executive compensation and that of the median employee. This rule has been an object of scrutiny by many business executives and republicans, who cite undue costs and effort in collecting the necessary information.

How It’s Relevant: This document, originally published by Deloitte at the end of 2016, has been updated and republished, considering current events. The article cites that, although there is uncertainty regarding whether the current administration will repeal these rules, it is important for public companies to operate under the assumption that the rule will be in place and enforced by the SEC. In fact, this article signals the SEC’s intention to advance and enforce its rulings until the White House decides otherwise. In this time of transition, it is crucial that accountants and auditors alike stay abreast of the changing regulatory environment.

Deregulation, Tax Reform, Cybersecurity and New Accounting among Top Issues at 2017 Shareholder Meetings according to BDO USA, LLP (March 7, 2017) – BDO (@BDO_USA)

BDO recently released a list of topics that boards of directors and corporate management need to be prepared to address at their 2017 annual meetings. These topics range from the Trump Administration, including the potential impact of presidential tweets, to cybersecurity. As it relates to the Trump administration, considerations include: deregulation (as evidenced by our discussion of Dodd-Frank earlier in this GAAP Flash), trade, tax reform, and presidential tweets. Non-Trump topics include the ever-increasing importance of cybersecurity, how companies are planning to implement the big 3 new standards, use of non-GAAP measures, whistleblower policies, global economic concerns, and M&A opportunities, among others.

How It’s Relevant: If you’ve been following along with the GAAP Flash for a while now, you’ll recognize many of the topics listed in this publication. Just as we’ve always discussed the importance of non-GAAP measures to accountants and auditors, it makes sense that shareholders, too, may now start asking questions about the company’s use of non-GAAP measures. As a former auditor, I believe this list from BDO can serve as a great list of “conversation starters” between the audit team and management to ensure that management has plans, policies, and controls in place to address the risks facing companies today based on the current environment, and to ensure that the audit team has a plan to evaluate its response to these new risks.

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.