Lennox International discloses alleged $425 (no zeroes) Russia bribe – from the FCPA Blog

I just thought this was interesting because of the small dollar amount, it is a short read from the FCPA Blog, about Lennox International self-reporting a $425 bribe. Of course, depending on the status of the audit committee’s investigation, it is possible that they could find more. And, as we know, dollar amount is not the only criteria for determining materiality – qualitative criteria can also be important.

Click on the following link for the discussion, Click Here.

New PCAOB Guidance On Form AP – Yes, To My Surprise, Some Of This Is Interesting

I have previously commented briefly about the new audit partner disclosure requirement – essentially, my comment was that I did not really see what the big deal is about this. But on June 28, 2016, the PCAOB issued staff guidance for Form AP, and as a result, I have to step back a little my initial comments. The following is a link to the PCAOB guidance, and Form AP, CLICK HERE

I still don’t believe in the broad view that it is a big deal to name the audit partner, however, I am now seeing that it might be possible to do a tally on how many audits a particular person (identified by a specific numeric code for that particular person) is listed as the audit partner, and it would not surprise me if someone in the future, or even the PCAOB, or the SEC, or plaintiffs’ counsel in a litigation case for auditor liability, questions the number of audits on which someone can effectively perform as the primary audit partner?

Further, if my reading of the Form AP, and the guidance, are correct, it appears that the Form requires the auditor/auditing firm to provide the numbers of hours spent performing the audit, and it appears that to some extent those hours need to be further divided or broken down into some of the different important audit areas or programs.  This information could be useful for a number of purposes. It would allow a comparison of audit fee to hours spent between different entities and industries (and how much is being charged per hour). It gives the regulatory entities, such as the PCAOB and the SEC useful information to evaluate audit effectiveness. If admissible in court, it could be used to argue in particular cases whether the auditor spent enough time on a particular audit area or program. And the information about the different audit firms involved in the audit and their time spent might be similarly interesting.

And all of this might be of interest to the audit committee in its hiring, evaluation and retention of the audit firm, assuming, of course, that someone or some entity compiles and reports this information in a useful format.

Best, Dave Tate, Esq., San Francisco and California

Click on the following for my Tate’s Excellent Audit Committee Guide, Tate’s Excellent Audit Committee Guide 01032016 with Appendix A Final

See also my trust, estate, conservatorship, power of attorney, and elder abuse litigation blog at http://californiaestatetrust.com

Audit Committee 5 Lines of Defense 07182016

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Really Massive Changes in Accounting, Auditing, Reporting and Communicating – The End Of Accounting?

Although I practice as an attorney, I previously practiced as a CPA and I have experienced several times over the years when there were significant changes occurring in the accounting practice and profession. But right now, I believe that I am witnessing multiple massive changes that have been long in the making. The following is a link to an Accounting Today article which does a pretty good job of discussing some of the changes, and also includes a question whether this is the end of accounting – click on the following link, CLICK HERE

It’s not like these changes are screaming at you in the headlines, but the cumulative effect is significant, new changes are continuing and will continue, and perhaps more important, the reasons for the changes are permanent.

For a long, long time the value of the audit and of the audit report have been questioned.

For a long, long time, the value of the information provided by an accounting that is prepared in conformity with generally accepted accounting principles has been questioned.

Different stakeholders also have different needs, and speed at which the flow of information is needed and expected is ever-increasing. Audited financial statements, for example, don’t tell you very much about the future investment or business generating value of the entity or of the transactions reported, or of the risks that are associated.

So now, for example, in addition to GAAP accounting we have non-GAAP accounting and reporting, we are seeing an increased ability to audit all transactions by computer software, GAAP is moving from the more detailed and specific rules based approach back to the more principles based approach that was in place when I first became a CPA, and non-GAAP measurements or criteria are becoming or should become more important such as some of the governance criteria (integrity, tone-at-the-top, culture, etc.), sustainability, transparency, risk management, and more emphasis on internal controls such as COSO.

However, I don’t agree with the suggestion or question in the title to the above linked article – it’s not the end of accounting. Traditional accounting serves a useful purpose – can you imagine what a free for all it would be without traditional accounting? There would be absolutely no checks or balances. There would be a “zero” reliability factor, and no comparability between different entities or industries.

But there is no question that the changes that have occurred and that continue to occur in accounting and auditing create both opportunities and risks for investors, financial institutions and other stakeholders, executive, financial, accounting and audit officers and professionals, boards, and audit and risk committees. The people who will excel are the people who will embrace and become expert in these changes. It’s a lifetime of learning to stay ahead and relevant.

Best to you. Dave Tate, Esq.

The following is a link to my Tate’s Excellent Audit Committee Guide, updated January 2016, CLICK HERE

PCAOB Proposes Significant Changes to the Audit Report – From PWC

The PCAOB has again proposed changes to the standard audit report in which the PCAOB proposes that the report disclose additional information, for example about communications to the audit committee and about judgment or estimate related issues. Here is the link to a discussion by PWC, CLICK HERE. Comments about the proposal are due by August 2016.

This is a modified version of a prior PCAOB proposal. I’m not particularly convinced that the proposal requires a detailed discussion by me at this time as, similar to legislation, the proposal will change over time and whether or not it will ever be enacted is uncertain. However, given that this is a second serious attempt to enact a change in the audit report for audits performed and that are subject to PCAOB oversight, I must believe that this attempt will have an increased chance of being enacted.

I continue to believe that the current audit report suffers from significant limitations that reduce or limit its usefulness and relevancy for investors. I question the number of audits that would be performed if not for the statutory requirement? And we are seeing other efforts to increase discussions and disclosures that are thought to be useful to investors, such as the activities of the Sustainability Accounting Standards Board and other activities by the PCAOB.

In general, these activities also should benefit the external and internal audit professions as they will make their activities even more relevant, and also likely increase their workload.

One other thought: where are audit committees on this? I believe that in general they should support these efforts: on the one hand these activities might increase audit committee complexity and workload, but on the other hand, as the audit committee is significantly dependent on information that is provided by other people (because the audit committee is not involved in the day-to-day activities of the business, and its role is diligent and informed “oversight”), this information and these disclosures tend to provide the audit committee with additional information that might help in the audit committee member’s oversight effectiveness.

Best, Dave Tate, Esq. (San Francisco/California), and here is a link to my audit committee guide, CLICK HERE

PCAOB proposes changes to audit report

PCAOB Rules to Improve Transparency by Disclosing Engagement Partner Name and Information about Other Audit Firms are Approved by SEC

Short and brief, the following is a link to the PCAOB site if you want to read more about this new change (Click Here), but in truth, I just don’t see why this took so much effort and time to approve. I don’t see this as a big deal. Do you? Am I missing something? In any event, I’m passing this along.

Best, Dave Tate, Esq. (San Francisco / California)

Fuzzy-Math Accounting Gets Fresh SEC Scrutiny

It’s generally accepted that a lot of accounting isn’t, well, generally accepted . . . click on the following link for the article: www.accountingtoday.com

Dave Tate, Esq. comments. Fuzzy-math v. fuzzy-reporting v. fuzzy-presentation v. fuzzy-accounting?  I don’t necessarily agree with the “fuzzy” or that “a lot of accounting isn’t, well, generally accepted.” Viewing the issue as an attorney, CPA and audit committee member, each situation must be evaluated on a case-by-case basis. If the rules aren’t absolute, or are vague, discretionary or subject to interpretation, you are going to have these differences, and it doesn’t mean that the company did anything wrong – it might simply mean that the SEC has a viewpoint that is different than the company and the company’s external auditor. The accounting/auditing pronouncement authorities are shifting to a more “principles” based accounting approach, and away from some of the exact rules. I have previously commented that this “principles” based approach, which was the approach at the time when I first became a CPA, also may lead to more uncertainty and discretion. Most likely these situations will be increasing in numbers.