Category: Accounting and Auditing
Public companies expected to be required to disclose government subsidies
This article in Bloomberg BNA reports that FASB is expected to issue new rules this year that will require public companies to disclose the amount of their government subsidies. Government support would include, for example, cash and non-cash economic incentives such as grants to assist in buying a building, land grants, low-interest loans, interest expense subsidies, tax abatements providing relief from property tax, sales and use tax or payroll tax, and other legally enforceable government incentives. It remains to be seen whether—and how—the public might react to this information.
CAQ issues new roadmap for audit committees on non-GAAP measures
The Center for Audit Quality has issued a new guide for audit committees related to non-GAAP financial measures. Based on information gained from a series of roundtables held in 2017, Non-GAAP Measures: A Roadmap for Audit Committees identifies common themes and key considerations for audit committees, including leading practices to help assess whether a company’s non-GAAP measures present “high-quality non-GAAP measures.” And what exactly is a “high-quality non-GAAP measure”? According to the CAQ, a non-GAAP measure is high-quality if it provides a “balanced representation of the company’s performance.”
Report on international disclosure of “key audit matters”
This study conducted by the Association of Chartered Certified Accountants reports on the results of a year of international reporting of “key audit matters,” the International Auditing and Assurance Standards Board’s analog to “critical audit matters” in the U.S. The study looked at 560 audit reports across 11 countries. These types of studies may provide some useful insights for companies in the U.S.: disclosure of “critical audit matters” will be required as part of the auditor’s report in the U.S. for audits of fiscal years ending on or after June 30, 2019 (for large accelerated filers) and December 15, 2020 (for all other companies to which the requirements apply). According to the study, financial reporting improved following the adoption of KAMs in 2016. Not only did the disclosures themselves provide better information, but the study saw improvements in governance, audit quality and corporate reporting.
In light of the recent fraud charges against audit firm partners and the PCAOB, what questions should audit committees ask their outside auditors?
Recent civil and criminal fraud charges against partners at KPMG and staffers at the PCAOB, arising out of “their participation in a scheme to misappropriate and use confidential information relating to the PCAOB’s planned inspections of KPMG,” have led some managements and audit committee members to consider whether there is more they should be doing to ensure that their outside audit firms are not plagued by similar concerns. This article from Compliance Week sifts through a speech by Helen Munter, PCAOB director of inspections and registration, to assemble a series of questions that, in light of these recent charges, may be appropriate for audit committee members to pose to their outside audit firms.
SEC files charges against former PCAOB staff and former KPMG partners—collateral impact?
Yesterday, the SEC filed charges against six CPAs, including former staffers at the PCAOB and former partners of KPMG, arising out of “their participation in a scheme to misappropriate and use confidential information relating to the PCAOB’s planned inspections of KPMG.” All have now been separated from KPMG or the PCAOB, and the U.S. Attorney’s Office for the SDNY has filed criminal charges. Here is the press release, which advises that the “SEC stands ready to work with issuers to ensure that collateral effects, if any, to issuers and, in particular, their shareholders are minimized.”
A Christmas gift from the SEC staff: guidance on disclosure of the accounting effect of the Tax Cuts and Jobs Act
Yesterday, the staffs of the Office of Chief Accountant and Corp Fin issued guidance regarding disclosure of the accounting impact of the Tax Cuts and Jobs Act, just signed into law on December 22. As discussed in this PubCo post, companies have been fretting about the timing of the new Act and whether they will be able to accurately determine the impact of the tax changes on their financial statements in time to file their annual and quarterly reports with the SEC. That is largely because, under U.S. accounting rules, companies must generally reflect the impact of these tax changes in the quarter they are signed into law, even if they go into effect at a future date. The staff has been talking with companies about their concerns and has responded with this guidance, which, Corp Fin Director Bill Hinman observes, “recognizes that investors demand and deserve high-quality information, while also recognizing that entities may face challenges in accounting for one of the most comprehensive changes to the U.S. federal tax code since 1986.” According to the related SEC Statement, the “staff guidance, which reflects the approach taken in prior situations where legislative changes could significantly affect financial reporting, provides a ‘measurement period’ for issuers to evaluate the impacts of the [Act] on the their financial statements. Importantly, the guidance also sets forth staff expectations for disclosure to investors during the measurement period.” Merry Christmas finance departments and auditors!
Assessing impact of major tax law change, if enacted, on financial statements on a timely basis would present huge challenge
The potential passage of the new tax bill is giving some finance departments conniptions, according to Bloomberg BNA, and they’re hoping that the SEC will address the problem. The SEC? Yes. While companies are happy to see the tax breaks, some companies, especially large multinational companies, are anxious about whether they will be able to accurately determine the impact of the tax changes on their financial statements in time to file their annual and quarterly reports with the SEC. The obvious concern is that, if the SEC doesn’t extend the filing deadline, companies could risk making material misstatements.
What’s on the Agenda—the SEC’s Regulatory Flexibility Agenda, that is?
SEC Chair Jay Clayton has repeatedly made a point of his intent to take the Regulatory Flexibility Act Agenda ”seriously,” streamlining it to show what the SEC actually expected to take up in the subsequent period. (See this PubCo post and this PubCo post.) The agenda has just been released, and it certainly appears that Clayton has been true to his word: several items that had taken up long-term residency on numerous prior agendas seem to be absent from this one.
Boilerplate CAMs in auditor’s reports? That would be a bummer, man
In what were surely unprepared remarks to the American Institute of CPAs conference on SEC and PCAOB developments, as reported by Bloomberg BNA, SEC Chair Jay “the Dude” Clayton commented on the impact he expects the new form of auditor’s report could have on his mood: “‘If it results in quality, I’ll be happy….And if it results in boilerplate, I’ll be really bummed out.’”
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