Category Archives: Accounting and Auditing

SEC Chief Accountant addresses audit committee effectiveness

by Cydney Posner

In a recent speech at the University of Tennessee, “Advancing the Role and Effectiveness of Audit Committees,” SEC Chief Accountant Wes Bricker discusses his recommendations for — wait for it — improving the effectiveness of audit committees.  The speech addresses issues such as diversity, work overload, tone at the top, staying current, implementing new GAAP standards, internal control over financial reporting, non-GAAP measures, external auditor oversight and enhanced audit committee reporting. Continue reading

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Corp Fin suggests it will take a look at non-GAAP disclosure practices in the pharmaceutical industry

by Cydney Posner

Even important industry players can sometimes run up against brick walls at Corp Fin. In a recent give-and-take with the SEC, Allergan was scolded for its use of certain non-GAAP financial measures in its press releases.  While in its responses to the staff, the company cogently explained its reasoning, the staff did not ultimately agree with company’s view, putting to the test one of the staff’s most recent CDIs regarding performance versus liquidity per-share measures. Moreover, in conversations with the staff, the company apparently conveyed the impression that the practice disfavored by the staff was widely followed in its industry group, leading the staff to caution that it plans to evaluate practices in the pharmaceutical industry. Companies in that industry may want to pay attention. Continue reading

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KPMG surveys audit committee concerns

by Cydney Posner

What are audit committee members’ greatest concerns? Audit committee members participating in KPMG’s 2017 Global Audit Committee Pulse Survey identified risk management as the biggest challenge for audit committees in 2017, with 42% of those surveyed characterizing their existing risk management programs as requiring “substantial work,” and a “similar percentage” indicating that it is “increasingly difficult to oversee those major risks.” However, only 51% indicated that they have the time to oversee major risks effectively and only 46% say they have the expertise.  Moreover, 39 % say it is increasingly difficult to find the necessary time and 43% say the same with regard to the necessary expertise. Also high on the list of challenges were legal/regulatory compliance, cybersecurity risk, the control environment in the extended organization and tone at the top. Continue reading

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Audit committee oversight of the new revenue recognition standard: Center for Audit Quality comes to the rescue

by Cydney Posner

As discussed in this PubCo post, the SEC’s Office of the Chief Accountant has continued to beat the drums to encourage companies and their audit committees to hunker down and address the impending effectiveness in 2018 of the new revenue recognition standard, particularly with respect to assessment and implementation of the new standard and transition disclosures necessary to help investors assess the impact of the new standard.  For some companies, the undertaking can be enormously challenging, which may explain why the SEC’s encouragement appears to be necessary. A 2016 PwC survey showed that 22% of respondents had not even started the assessment, 65% were in the assessment phase and only 13% were in the implementation phase. And for those in the assessment phase, 59% were not that far along — barely halfway or less.  With regard to disclosures, according to the WSJ, only 15 companies in the S&P 100 have included transition disclosures in their most recent quarterly reports. Continue reading

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SEC Chief Accountant and staff speak at AICPA National Conference

by Cydney Posner

Earlier this month, at the 2016 AICPA conference on current developments, the SEC’s Chief Accountant and several staff members of his office shared their insights on a variety of key accounting topics, among them the following: Continue reading

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Should non-GAAP financial measures be audited?

by Cydney Posner

At a meeting yesterday of the PCAOB’s Investor Advisory Group, two working groups reported on topics that might be of particular interest: non-GAAP financial measures and enhanced audit reports. Continue reading

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Are stock options a counterweight to whistleblower bounties?

by Cydney Posner

A new academic study, “Rank and File Employees and the Discovery of Misreporting: The Role of Stock Options,” finds that companies that flout financial reporting rules tend to grant more stock options than their peers that adhere to those rules. Moreover, the study found that violators that granted more options to rank-and-file employees during periods when violations were ongoing were more likely to avoid whistleblowing allegations.  Although it may sound cynical, the authors of the study posit the theory, as reported in this article in the WSJ, that violators may be using option grants in “an attempt to discourage whistleblowing.” Continue reading

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