December 12, 2018

Accounting News Roundup: Audit Committee Disclosures; Brexit and IFRS; Underaccrued PTO | 10.21.16

Audit committees, disclosures

Research from Ernst & Young found that 82% of the Fortune 100 audit committees "explicitly stated they were responsible for appointing and overseeing their company's external auditor, as well as the auditor’s compensation." That's up from 42% in 2012. On the one hand, it's interesting that this is a voluntary disclosure; on the other, it's not all that informative. I mean, if you're a "sophisticated" investor, don't you take this for granted? I find it hard to believe that just because more companies are now admitting it in SEC filings, means lots of people are better informed.

In any case, companies seem to be trying to appease investors and regulators:

In recent years, institutional investors have faulted the lack of such information, leading regulators to propose stricter rules.

“It’s encouraging that voluntary audit-related disclosures continue to grow,” said Ann Yerger, executive director at the EY Center for Board Matters.

The Council of Institutional Investors has proposed requiring companies to disclose how they evaluate fees and their connection to audit quality, and how they determine the renewal of an audit firm, particularly those providing service for 10 or more years. “We think that type of information is important in helping investors understand the audit committee’s responsibilities in overseeing the audit,” said Jeff Mahoney, the group’s general counsel.

Determining whether to renew an auditor and explaining the value of auditor tenure — now that would be insightful. One of the chief reasons opponents to auditor rotation gave was that long-term auditor tenure provided a lot more value to company. If that's true then no one should have a problem explaining that in detailed disclosures, right? 

Anyway, at least audit committees aren't totally ignoring auditors.

Brexit and IFRS

Among one of the more boring unintended consequence of Britain leaving the EU could be the accounting principles the country uses. IFRS hasn't exactly been everyone's favorite, so it leaves the door open a bit:

Some British lawmakers have said the IASB rules exacerbated the financial crisis and lack rigour.

"Brexit could have significant implications for the adoption of international financial reporting standards depending on the exit arrangements negotiated by the government," said Paul George, executive director for corporate governance and reporting at the Financial Reporting Council, said,

"The FRC continues to support the application of a single set of high quality global financial reporting standards for listed companies."

The watchdog said it will identify potential risks to the accounting framework at the point Britain leaves the EU and afterwards, and consider opportunities for improvements.

Here in the US, most people remained staunch accounting nationalists while we let the rest of the world sing Kumbaya around IFRS. Now, Brexit seems to be the thread that could unravel the whole thing. I'm sure that scenario is only in IFRS supporters' worst nightmares, but it'd be quite the reversal of fortune for the IASB if everyone started going back to their own sovereign accounting principles.

Accountants behaving badly

A couple of FMC Technologies' former controllers got their company a little unwanted exposure yesterday:

Energy technology company FMC Technologies will pay a $2.5 million penalty to settle charges that it overstated profits in one of its business segments, the U.S. Securities and Exchange Commission said on Thursday.

Two now former executives made the improper adjustments after being pressured to improve the financial performance of the Houston-based company’s energy infrastructure department, the SEC said.

Jeffrey Favret and Steven Croft understated the company's accrued liability for PTO which led to overstating pre-tax profit by $800k. The pair also "corrected a $730,000 error recorded in 2012 that increased their department’s operating results for first quarter 2013" without notifying their boss. That's not advisable and neither is this:

The two later signed letters to the company in which they represented that they did not make adjustments larger than $250,000 outside of the accounting period at the time, the SEC said.

Come on, guys.

Has Donald Trump released his tax returns?

Nope! I think Trump has successfully managed to divert the media's attention away from his tax returns. It didn't even come up at the Al Smith dinner last night, as far as I can tell. It's quite an impressive feat, except for well, you know.

Previously, on Going Concern…

Megan Lewczyk wrote about SOC 2 reports. I tried to imagine how Donald Trump and Hillary Clinton would fit into public accounting.

In other news:

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