GAAP Flash – PCAOB risks, non-GAAP items, and foreign taxes – 10.20.17
GAAP Flash – PCAOB risks, non-GAAP items, and foreign taxes – 10.20.17

GAAP Flash – PCAOB risks, non-GAAP items, and foreign taxes – 10.20.17

This week’s GAAP Flash includes articles about the PCAOB identifying focus areas for their 2017 inspections, GE reporting four different adjusted earnings metrics, Senators contacting the FASB about additional multinational tax disclosures, and what auditors should focus on for their upcoming audits.

PCAOB eyes biggest risks in upcoming inspections (October 16, 2017) – Accounting Today (@AccountingToday)

The consulting firm Protiviti recently released a report aiming to advise public companies and auditors about three specific focus areas of the PCAOB for 2017 inspections (2016 audits). The PCAOB highlighted these areas in an August staff inspection brief, which they tend to discuss on an annual basis. The three areas are: addressing processes for adopting new accounting standards (i.e. revenue recognition and leasing), information technology (i.e. the use of firm software audit tools and cybersecurity), and financial reporting (i.e. areas surrounding significant judgment, estimates, valuations/the use of specialists).

How It’s Relevant: The PCAOB doesn’t randomly select areas to review, there is a method to their madness! Historical issues, economic and industry factors, and risk profiling all go into selecting areas of focus. While these three areas represent current issues that companies and auditors are dealing with, don’t expect the PCAOB to only focus on these three areas. Recurring audit deficiencies, internal control over financial reporting, risk assessments, and fair value measurements are also on their radar. Be prepared for anything! To help you prepare, be sure to download our free PCAOB eBook where we discuss audit deficiencies!

Everyone's fed up with GE's confusing accounting (October 16, 2017) – Bloomberg (@business)

General Electric Co. (GE) reported four different earnings-per-share (EPS) numbers for their second quarter ended! Each number excludes certain items, such as pension costs or discontinued operations, and has caused headaches for investors who think the different earnings are obscuring GE’s true performance. While most companies release adjusted earnings (non-GAAP measures), GE stands out for their complexity of its quarterly reports and is one of only 21 S&P 500 companies that release more than one adjusted EPS figure.

How It’s Relevant: Do you know that non-GAAP financial measures are the most frequent subject area of 2017 SEC Comment letters? They have been a hot topic with the SEC for a while, and GE has been on the receiving end of comment letters focused on their non-GAAP disclosures. Companies believe that their non-GAAP measures provide additional clarity on their underlying operations but the SEC believes these disclosures can make earnings appear better than they are, which is misleading to investors. This isn’t the first time we’ve tried to warn you about non-GAAP financial measures and it probably won’t be the last!

Senators ask FASB to require multinational to disclose more tax info (October 17, 2017) – Accounting Today (@AccountingToday)

A group of eight Senators recently sent a letter to the FASB asking it to require multinational companies to disclose their taxes, profits, and revenues on a country-by-country basis, which is similar to a recent letter sent to the FASB from a group of House lawmakers. The Senators believe country-by-country disclosures are important for both policymakers and the general public, as the information will be useful in examining economic trends and addressing public policy issues.

How It’s Relevant: With potential changes in tax reform on the horizon, many investors are wanting to know if their investments will change because of changes to international tax rules or how these changes will impact the landscape of a company’s assets. The House and Senate are not the only ones that have been in contact with the FASB, other prominent investor groups and financial analysts have also asked the FASB to make similar changes. Additionally, we’ve discussed this same issue in a previous blog post and the Wall Street Journal recently released an informative video on off-shore profits – check them out for some great information!

What are auditors looking for this year? (October 16, 2017) – CFO (@CFO)

This article discusses critical accounting issues that auditors should be focusing on for their upcoming annual audits. Changes in the economy, technology, and regulations point to “red flags” for auditors and now is the time to address the impact of these items on your client’s risk assessment and internal controls. Disclosures surrounding these areas are also an important component to your audit procedures.

How It’s Relevant: The accounting world has been through a lot this past year – think of the increased cybersecurity threats (i.e. Equifax and the SEC), the impact on the retail industry due to the dominance of Amazon (i.e. Toys-R-Us bankruptcy), and standard changes (i.e. revenue recognition and leases). As we discussed above in our first article, the PCAOB is also considering these issues as part of their inspections. But don’t forget that the PCAOB remembers everything and will also challenge continued issues such as non-GAAP financial measures, segments, foreign income taxes, and MD&A. There is so much to consider and to plan for so make sure you are well prepared! Contact us today to discuss any training you might need!

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.

PCAOB Inspection
 
PCAOB Inspection

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