PCAOB Inspections
Auditor of auditors, the PCAOB, released the closest thing it has to a teaser-trailer yesterday: Staff Inspection Briefs that preview its 2015 inspection findings of both auditors of issuers and broker-dealers.
The good news is the 10 firms the Board inspects every year didn't suck it up:
Preliminary 2015 inspection results of the annually inspected firms indicate the overall number of audit deficiencies identified has decreased compared to the results from the 2014 inspection cycle.
Inspections staff has observed indications of improved audit quality over time in some of these firms inspected, and some of the contributing factors to these improvements may include changes in areas such as new practice aids and checklists, coaching and support to teams, and monitoring the quality of audit work performed.
The bad news is, everyone else did:
For firms that are required to be inspected at least once every three years (“triennially inspected firms”), Inspections staff observed an overall high number of audit deficiencies in preliminary 2015 inspection results.
As for broker-dealer auditors, they're still struggling with some basics:
In 2015, independence impairments were identified with less frequency than in the past, though Inspections staff continued to observe instances in which independence appeared to be impaired because the auditors were involved in the preparation of the financial statements or performed bookkeeping or other prohibited services related to the accounting records of their broker and dealer clients.
We've noted some of these independence problems, but it's always going to be moot in the fuller context of the issuer-pay model. In any case, I'm sure the 2015 inspection results will be a hoot.
Elsewhere in auditing: PwC Canada cleaned up last year.
SEC Enforcement
The SEC announced a couple of accounting enforcement cases yesterday against Logitech International, Ener1 and executives at each company. Both cases are pretty tedious: Logitech's related to warranty accruals and amortization. Ener1's case features an investment and receivables that management failed to write down. A PwC partner, Robert Hesselgesser, got wrapped up in the Ener1 mess, as he, basically, got lazy:
[Hesselgesser] failed to perform sufficient procedures to support his audit conclusions that Ener1 management had appropriately accounted for its assets and revenues.
Fines. Suspensions. Clawbacks. You know the drill.
Elsewhere: According to Cornerstone Research, accounting-related class action lawsuits increased for a third straight year in 2015. Settlements were $2.6 billion.
Non-GAAP Worries
If you or someone you know is worried about non-GAAP reporting, you'll want to keep your eyes peeled during conference season, when you're surfing the web, basically everywhere:
There is no question that some companies have become overly aggressive with the nature and scope of their non-GAAP adjustments. Inconsistencies can arise between marketing-oriented earnings and other financial releases and actual SEC periodic reports, particularly regarding the prominence and nature of non-GAAP measure presentations. Similar problems can arise with regard to investor trade conference presentations, whose slide decks are frequently posted on company web sites and non-GAAP financial measures posted on social media. And occasionally the purposes behind a company’s use of non-GAAP disclosures are less than honorable.
You can't stop non-GAAP metrics; you can't even hope to contain them.
Elsewhere: This one is from last week, but you'll be shocked — SHOCKED — to learn that tech companies love non-GAAP metrics.
Accountants Behaving Badly
This headline reads: "The Hells Angels hitman who looked like an accountant" so while an accountant did nothing wrong here, it insinuates that you should be fearful of accountant-looking people because they could mixed up with a bike gang or some other bad behavior. For more classic bad accountant behavior, there's this Long Beach accountant who's been accused of embezzling $200k from foster homes.
Previously, on Going Concern…
Should a person should acknowledge every email? And in Open Items, more discussion on the AICPA member ballot.
In other news:
- Now Democrats are holding up the SEC commissioner nominees.
- Among last week's auditor changes: WisdomTree Coal Fund dumped Grant Thornton for EY.
- Intel will be needing a new CFO.
- "he’s high all the time, but he knows his tax laws. you can’t file any class 4 deductibles without form 420-ez. that’s an audit waiting to happen."
- How Oregon Pot Dealers Pay Taxes
- Do We Even Need 420 Anymore?
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