Audit Firm: Vault Top 50 US Accounting Firms

Vault.com, an online careers site, has unveiled its annual ranking of the best accounting firms to work for in the U.S. Vault uses the following survey methodology to rank the audit firms.

Methodology: “When Vault asks accounting professionals what matters most to them in choosing an employer, they continually tell us that although prestige is important, it's not the only determining factor. In addition to prestige, accounting professionals find the following factors extremely important: firm culture, type of work, location, work/life balance, compensation, business outlook, and training opportunities.

As a result of these findings, Vault has compiled a weighted formula that reflects the issues job seekers care about most. We believe that this formula showcases those accounting firms deemed the Best to Work For. The Vault Accounting 50 is based on the following:

• 40 percent prestige
• 20 percent firm culture
• 10 percent work/life balance
• 10 percent compensation
• 10 percent overall job satisfaction
• 5 percent business outlook
• 5 percent formal training

The top 10 Accounting/Auditing Firms in US at the Vault top 50 for 2016 are as follows.

1. PwC (PricewaterhouseCoopers) LLP
2. Ernst & Young LLP (EY)
3. Deloitte LLP
4. KPMG LLP
5. Grant Thornton LLP
6. BDO USA LLP
7. McGladrey LLP
8. Plante Moran
9. Moss Adams LLP
10. Crowe Horwath LLP

You can see the complete list of Top 50 Accounting firms by Vault at the under mentioned address:

http://www.vault.com/company-rankings/accounting/vault-accounting-50

Additional Thoughts

Accounting Firms should develop a congenial and friendly working environment for its employees and young graduate trainees so that they are developed and groomed professionally. A culture that promotes leadership, diversity, ideas generation will not only nurture the employees to grow professionally but will also bring good reputation for the firms locally and globally.

Audit Method: Oil & Gas Industry

The Oil & Gas Industry comprises of three sectors:

The Upstream sector: This is also called the exploration and production sector (E&P). It involves the search for potential underground or underwater crude oil and natural gas.

The Midstream sector: This sector involves the transportation, storage and marketing of petroleum products.

The Downstream sector: this sector is involved in the refining of crude petroleum products and processing and purification of the raw natural gas.

Accounting for oil and gas companies is a bit complicated because it has to reflect the company’s principal assets; the oil and gas reserves, with ownership rights often based on contractual relationships between the oil and gas producing entities and the owners of the mineral rights. 

Some of the specific accounting issues which arise in the Oil and gas sector are as follows: 

• Joint Arrangements: It is a common term for oil & gas companies to share the risks and costs of exploration and production activities. A separate Joint Venture Account statement is prepared which shows the advances received from working interest owners and how the amount is spent.
• Revenue recognition: The revenue arising from each transaction is recognized based on the terms of the underlying sales agreement.
• Exploration & Evaluation Assets and Development Assets: IFRS 6 - Exploration for and Evaluation of Mineral Resources explain the complete accounting for these assets.
• Depletion, depreciation and amortization (DD&A): The unit of production method is most commonly used to deplete upstream oil and gas assets.
• Impairment of non-financial assets: IFRS 6 relaxed the rules of annual impairment testing for exploration and evaluation (E&E) assets. IFRS 6 requires these assets to be tested for impairment only when the facts and circumstances suggest that the carrying amount may exceed its recoverable amount and on the transfer of E&E asset to development assets. 
• Reserves Reporting: The purpose of reserve reporting is to make available information about the oil and gas reserves which are controlled by the company. This information helps to assess the companies’ current performance and future prospects.
• Provisions for Decommissioning Costs: Due to exploration and evaluation activities oil and gas companies often are required to create a provision for meeting the costs of site restoration, decommissioning and dismantling of assets. It is covered by IAS 37.

Practice

While conducting the audit of oil & gas companies, the auditor should gain thorough and deep understanding of the industry and the practices followed by the oil & gas companies. Audit requirements may vary depending on whether the company is operating in an upstream, midstream or downstream sector. Moreover audit procedures in upstream sector also vary depending on whether the company is an operator or non-operator of and oil or gas well or lease. 

Audit Firm: Personality of Auditor

There are a few personal characteristics that are important for an auditor to have:

• Auditors should possess a strong ethical framework and report on issues (or anticipated issues) as they come across them. There is a temptation to "let things go" as further investigation may require more work or reveal embarrassing processes, performance and/or fraud.

• Good communication skills allow auditors to have a rapport with a variety of employees, managers, directors and external parties. As auditors establish good rapport with a variety of individuals, however, they should keep in mind the objectives of the audit (for instance, the reliability, verifiability, accuracy and timeliness of information), as they can often be tempted to not report on issues discovered.

• Strong interpersonal skills are important, due to the variety of informational requests - and often, resistance to those requests - required from a variety of sources. Strong and/or ambitious types may attempt to dissuade auditors from revealing embarrassing findings.

• Auditors need to be team players. As the scope of the audit can be fairly large, it is beneficial to help in other areas of an audit when resource constraints warrant it.

• Finally, "professional skepticism" is an important trait to have, especially when reviewing a company's internal controls. One needs to assess how perpetrators of fraud can beat a company's controls, and auditors need to design and implement a system that can effectively protect the organization's assets.

Audit Method: Telecom, Media and Entertainment

Media and Entertainment business include companies for movie studios, TV station groups, Cable distribution companies, Radio broadcasting companies, Advertising companies, Interactive gaming companies, Book publishing companies, Newspaper publishing companies and Internet companies. Media and Entertainment businesses live or die based on how well they identify and manage trends.

Telecommunications is a general term and include a vast array of technologies that transmit and receive voice, data, and video information over varying distances through electronic means. Telecommunications is a huge industry, comprising companies that make hardware, produce software and provide communication services.

The main area of concern for auditors while conducting the audit of a telecom media or entertainment company is to verify their revenue. Telecom operators continue to lose billions of dollars every year due to revenue and fraud leakage. Most telecom companies principally obtain revenue from providing the following telecommunication services: access charges, airtime usage, messaging, interconnect fees, data services and information provision, connection fees and equipment sales. Products and services may be sold separately or in bundled packages. The fast pace of change and intense commercial competition increase the likelihood of mistakes. There is significant complexity in determining the combined effect of interacting systems and processes; and the high-volume, low-value nature of transactions amplifies the financial implications of "small" errors.

Another area of concern for auditor is to verify the license fee paid by media and telecom companies to the government and compliance of companies with the regulations imposed under the provisions of these licenses by the government.

Fixed assets verification particularly in telecom service provider companies is also an area which requires auditor’s significant attention. Telecommunications is a very capital-intensive industry, with the fixed assets of network infrastructure forming a large part of a telecom company’s balance sheet whether it is a fixed line, mobile or fiber network. Fixed assets management remains an important competitive differentiator as it presents significant operational and internal control challenges. Auditor should be diligent in reviewing asset lives manually, as well as in a more sophisticated manner with the use of client integrated ERP systems generated reports.

Additional Thoughts

While conducting the audit of a telecom media or entertainment sector company; the principal rules remain the same for the auditor. The auditor should understand the entity and its environment, in which it is operating and identify and assess the risks of material misstatement. On the basis of this understanding the auditor should frame audit procedures to minimize the audit risk to an acceptable level. 

Audit News Briefing: 12 October 2015

Audit-is-cool is pleased to accumulate and provide its readers with the news on audit and related topics:

October 9, 2015

Accountancy Live

MEPs call for mandatory equal pay audits

Based on principles of respect to wage equality, Members of the European Parliament are calling for the European Commission to strengthen equal pay legislation - with proposals including mandatory pay audits with possible sanctions at EU level in cases of non-compliance. MEP Anna Záborská who proposed tightening up the rules said: ‘Equal pay for equal work is a fair principle that must be valued by all employers… ‘Today, this is not the case, which is why we need better legislation.’

Please follow link for details: https://www.accountancylive.com/meps-call-mandatory-equal-pay-audits

October 9, 2015

Journal of Accountancy

Audit fees rose in 2014 for SEC filers, private companies

According to a new survey by the Financial Executives Research Foundation (FERF), audit fees paid by SEC filers and private companies increased in 2014 - SEC filers reported a median increase of 3.4% over the fees they paid to external auditors the previous year.

Please follow link for details: http://www.journalofaccountancy.com/news/2015/oct/audit-fees-rise-in-2014-201513163.html

October 8, 2015

Accounting Web

Clarified Auditing Standards: Audits of Group Financial Statements

Larry Perry CPA recently published Part 2 of his column that featured the significant key definitions of AU-C Section 600 or Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors).

Here are the three majorly discussed group audit pre-engagement planning procedures:

1. The group engagement team should obtain an understanding of the business environments of the group and its components, and identify those that are significant.

2. The group audit partner must evaluate whether sufficient audit evidence can be obtained to report on the group financial statements.

3. The group audit partner must consider the information on the Client Acceptance and Continuance Forms for the group and component entities, and determine that sufficient evidence can be obtained to express an unqualified opinion on the group financial statements.

Please follow link for details: http://www.accountingweb.com/aa/auditing/clarified-auditing-standards-audits-of-group-financial-statements-part-2

Part 1: http://www.accountingweb.com/aa/auditing/clarified-auditing-standards-audits-of-group-financial-statements-part-1

Week-End: The Importance of Networking

Know that most things in life come from other people.

Every interaction you have is an opportunity to create a new friend.

Find out more about people’s interest and concerns.

Aim to keep in touch as the relationship will fade if you don’t.

Be willing to invest time talking with people.

Learn to enjoy it – people are endlessly fascinating.

Aim to leave people in better emotional shape than you found them.

The practice of networking (online and offline) will become even more important in the future. And think how important Facebook, LinkedIn, Branchout etc. are now! You’ll also find that income opportunities will arise due to the people you meet. Business is built on relationships. And seeking a high quality network may open the doorways that will surprise you. Remember, that the networks you are a part of can contact any person on the planet in only 6 steps. Whether president or pop star. Somebody knows somebody who knows somebody etc.

From the Book: LIFE: you can't stop the waves but you can learn how to surf!
By: Martin Shervington, John Seymour

Audit Firm: Big4 Interview Questions

Here is a list of top 10 interview questions for all the young specialists who wish to join any of the Big four audit firms (in fact any consulting firm) in their future career.

1. Tell me a little about yourself or background?
2. Why KPMG/Deloitte/PwC/E&Y?
3. Why audit/tax/advisory?
4. Are you interviewing with other firms? What’s the response from them?
5. Where do you see yourself in 5 to 10 years?
6. If your friends could pick three words to describe you, what would they be?
7. Do you prefer to travel?
8. What is your biggest weakness/strength?
9. Tell me about a time when you improved a process (or came up with a creative solution)?
10. What do you like best about a career in accounting/auditing?

Audit News Briefing: 08 October 2015

Audit-is-cool is pleased to accumulate and provide its readers with the news on audit and related topics:

October 2, 2015

Accountancy Live

Audit updates: October 2015

Audit tender: KPMG replaces PwC as auditor to Experian

KPMG is the new auditor of consumer credit check company, Experian plc – to replace PwC who have been pioneer external auditors from October 2006.

EU rules: BIS set to issue further consultation on EU audit directive

In accordance with the implementation of the EU Audit Directive and Regulation on 17 June 2016 – the Department for Business, Innovation and Skills (BIS) will publish a formal consultation this autumn focusing on the definition of a public interest entity (PIE), Financial Reporting Council (FRC) powers and the responsibilities of professional bodies. It will also consider issues around the introduction of mandatory retendering and rotation of PIE auditor appointments.

The practical application of the following requirements of the regulations need to be resolved: the types of entities in scope; prohibited non-audit services (NAS) to audit clients; application of independence principles across global accounting firms’ networks; and audit firm and key audit partner rotation.

KPMG ousts PwC as auditor of listed Premier Foods

KPMG will replace PwC after 11 years with Premier Foods. The latter’s statement explains: ‘The audit committee considered an audit tender in 2013 and it was agreed a formal tender exercise would be deferred until 2015, which represents the 11th year of the current auditor’s appointment.’

Please follow link for details:

https://www.accountancylive.com/audit-updates-october-2015

September 30, 2015

Accountancy Age

FRC consults in readiness for EU audit rules

The Financial Reporting Council (FRC) Chief Executive Stephen Haddrill’s statement reads: "The Audit Regulation and Directive is large and complex. We are working closely with professional bodies to make sure the new regulatory regime works as effectively as possible… We must ensure that it builds on the progress made in the UK in recent years in terms of the quality of audit, that competition in the audit market is strengthened in a way that supports innovation, and that the regulatory regime that emerges provides confidence to investors and to firms by being fair, understandable and independent." Please follow link for details: http://www.accountancyage.com/aa/news/2428095/frc-consults-in-readiness-for-eu-audit-rules

September 29, 2015

ICAEW

Press Release: Organise your financial filing says ICAEW

The Institute of Chartered Accountants in England and Wales (ICAEW) thru Tax Faculty Technical Manager Anita Monteith provided guidelines for financial filing, as published in their September 29 press release.

 

These are some of the most common items you should keep on file to keep on top of your financial paperwork:

    Payslips

    P45s/P60

    Dividend statements

    Records of charitable giving

    Bank statements and interest certificates

    Pension letters

    Pension contributions record

    Utility bills

    Mortgage statements

    Tax credit award notices

Please follow link for details: http://www.icaew.com/en/about-icaew/newsroom/press-releases/2015-press-releases/organise-your-financial-filing-says-icaew

Audit Method: Inventory Count

As per the requirements of ISA 501, if inventory is material to the financial statements, the auditor shall obtain sufficient appropriate audit evidence regarding the existence and condition of inventory by: a) attendance at physical inventory counting; b) performing audit procedures over the entity’s final inventory records to determine whether they accurately reflect actual inventory count results.

An Inventory count is carried out by business either: 

• to corroborate information contained in their books and records which is the product of a continuous accounting and control system, or
• to provide an inventory figure for inclusion in financial statement and to use in calculating profit where there is no system of continuous inventory accounting.

 The purposes of the physical inventory observation by auditor are to determine that

 the inventory actually exists,

• the methods of inventory taking are effective in obtaining accurate counts, and
• the inventory is in a usable and salable condition in the normal course of business (e.g., not damaged or obsolete).

It should be remembered that while the auditor will himself carry out test counts and extract certain cut-off information he is primarily there to observe that the client’s procedure are satisfactory. Where the client has an efficient system for inventory records, the physical inventory may be carried out on a continuous basis as opposed to counting everything in one go at the year-end. In the case of a client using the continuous basis, the auditor will still be required to observe a part of this continuous inventory counting.

  

Recommendation

When conducting inventory count at year end special attention needs to be paid by the auditor to apply proper cut off procedures (testing last receiving and shipping transaction), reconciling inventory count to the general ledger, testing high value items, testing inventory in transit, testing the inventory at third party warehouses, testing inventory cost including freight charges and testing for lower of cost or net realizable value/market etc. The working paper should be prepared in such a manner that the information can be easily followed up at the final audit visit. Test counts for example should have been traced to the stock sheets to confirm that they are a proper record of the results of the physical inventory.

Audit Firms: Non-Audit Services

Growth in consultancy among the Big Four is outpacing their traditional tax and audit services, while the firms are also outperforming management consultants. Big Four firms have been steadily rebuilding their consultancy arms through a series of acquisitions in order to compensate for stagnating growth for traditional audit work. The type of non-audit services that audit firms provide ranges widely from audit firm to audit firm. They may include professional advice on transactions (for example, a merger, acquisition or restructuring) as well as tax and broader business advisory services (including performance improvement and information technology). Non-audit services may also include advisory work to assist companies to comply with laws and regulations.

The strict regulations imposed by Sarbanes Oxley Act introduced in USA led to a rash of sales of consultancy divisions by the auditing firms. IBM for instance bought PwC's consulting arm, E&Y Consulting had already sold to Cap Gemini and KPMG did an IPO of KPMG Consulting, which then became BearingPoint. But by the time the Big Four's non-compete clauses expired, typically in three to five years, consulting was back as a high-focus area at the accounting firms.

Soon after the Enron controversy died, the accounting firms realized that regulations could be taken care of if they built a practice that largely consisted of non-audit clients where conflict situations didn't arise; and where there was overlap, they could always avoid selling certain services. And that's what they did. Deloitte recorded a revenue figure of US$ 34.2 billion (2014) with growth for consulting at 10.3 percent. EY advisory grew by 14.4% as compared to assurance growth of 4.5% in 2014. Out of PWC total revenue of US$ 34 billion in 2014 18.8 billion was generated by Tax and Advisory Services. Kpmg total advisory revenues for the year 2014 were up by 10.4% to US$9.09 billion, up from 6.5% in FY13.

That's indeed a high turnaround from 2002 when following Enron's bankruptcy and the dissolution of Arthur Andersen, KPMG and PwC dumped their consulting arms; Ernst & Young had already done so in 2000. The sell-off was a reaction to a toughened up Sarbanes-Oxley Act that restricted the scope of non-audit services that could be offered to audit clients to limit any conflict of interest.

Additional Thoughts

In many countries the codes of corporate governance forbids auditors to provide non-audit services to audit clients if that would present a threat to independence for which no adequate safeguards are available. It is the responsibility of the audit committee being the representative of shareholders to oversee the relationship between the auditor and the company. The audit committee must scrutinize the provision of non-audit services by the audit firms and must have to make sure that the independence and objectivity of the audit firm is not compromised.  

Week-End: The Rope for Young Elephants

As a man was passing by the elephants, he suddenly stopped, confused by the fact that these huge creatures were being held by only a small rope tied to their front leg. No chains, no cages. It was obvious that the elephants could, at any time, break away from their bonds but for some reason, they did not.

He saw a trainer nearby and asked why these animals just stood there and made no attempt to get away. “Well,” trainer said, “when they are very young and much smaller we use the same size rope to tie them and, at that age, it’s enough to hold them. As they grow up, they are conditioned to believe they cannot break away. They believe the rope can still hold them, so they never try to break free.”

The man was amazed. These animals could at any time break free from their bonds but because they believed they couldn’t, they were stuck right where they were. Like the elephants, how many of us go through life hanging onto a belief that we cannot do something, simply because we failed at it once before?

For all the aspiring accountancy career students; “Failure is part of learning; we should never give up the struggle in life.”

Audit News Briefing: 24 September 2015

Audit-is-cool is pleased to accumulate and provide its readers with the news on audit and related topics:

September 21, 2015

Accounting Today

US: PCAOB Strikes Deal with Luxembourg

“This agreement with the Luxembourg audit regulator reflects the strength and depth of our relationships in Europe.” – is the statement of PCAOB Chairman James R. Doty when US accounting and audit regulator, Public Company Accounting Oversight Board has entered into a cooperative arrangement with Luxembourg’s audit regulator, the Commission de Surveillance du Secteur Financier of Luxembourg. This is in relation to the oversight of audit firms subject to the regulatory jurisdictions of both regulators. Please follow link for details: http://www.accountingtoday.com/news/audit-accounting/pcaob-strikes-deal-with-luxembourg-75850-1.html

September 16, 2015

Accounting Today

Global: Demands Increase on Financial Service Internal Auditors

“This latest report in the Common Body of Knowledge series provides a provocative and in-depth look at modern financial services internal auditing,” said Institute of Internal Auditors global chairman Larry Harrington in a statement. “Its analysis provides real insight into some of the most vexing challenges the profession will face as it meets growing demands for services.” This is concerning the financial service industry as pressures for internal auditors are growing quickly around the world. The report examined the challenges facing the profession, identified regulatory requirements, and technology risks or threats involved. Please follow link for details: http://www.accountingtoday.com/news/audit-accounting/demands-increase-on-financial-service-internal-auditors-75803-1.html

September 3, 2015

Computer Business Review

Top 5 IT Security Audit Questions

The CBR Online recently featured in their Cybersecurity/Business segment, the most common audit compliance questions asked by external IT auditors to determine whether a company is able to safeguard its most valuable assets.

They are, as follows:

1. Do you have a documented security policy?
2. Are access privileges in your organisation granted adequately?
3. What methods do you use to protect your data?
4. Do you have a disaster recovery plan?
5. Are your employees familiar with existing security procedures and policies?

Please follow link for details: http://www.cbronline.com/news/cybersecurity/business/top-5-it-security-audit-questions-4661821

Audit Firm: Message from Financial Reporting Council to the Big 4

The Financial Reporting Council is the UK’s independent regulator responsible for promoting high quality corporate governance. It recently issued Audit Quality Inspection Report for the year 2014/15.

The review of the firm’s policies and procedures supporting audit quality is undertaken by the Audit Quality Review team of the Financial Reporting Council (“the FRC”) and it covered aspects of the following areas: 

• Tone at the top and internal communications
• Transparency report
• Independence and ethics
• Performance evaluation and other human resource matters
• Audit methodology, training and guidance
• Client risk assessment and acceptance / continuance
• Consultation and review
• Audit quality monitoring
• Other firm-wide matters

 Some of the key messages given by the FRC to the Big 4 audit firms are as follows: 

• Improve the testing of management reports and other system generated information to obtain assurance on its reliability for audit purposes.
• Improve the testing of controls.
• Ensure that audit planning discussions are held with Audit Committees on a more timely basis to enable their input to be reflected appropriately in the audit plan.
• Ensure audit teams pay more attention to the nature and complexity of entities when determining the scope and extent of group and component audit procedures.
• Improve the audit approach in relation to the testing of journals including the selection of journals based on the characteristics of fraud risk
• Ensure that, when using the firm’s valuation and other specialists, audit teams obtain sufficient appropriate audit evidence to corroborate their conclusions.
• Take action to ensure that partners are notified promptly of new audited entities and dispose of any financial interests held in them on a timely basis.
• Ensure that the firm’s audit reports accurately describe the audit procedures performed to address the identified risks.

Additional Thoughts

The key messages given by the FRC to the audit firms can be used as guidelines by the firms to improve the quality of their audits. Firms should develop more stringent internal quality control review mechanisms to improve audit quality and deliver services to the complete satisfaction of all the stakeholders. 

Audit Method: Written Representations

A written statement by management provided to the auditor to confirm certain matters or to support other audit evidence. Written representations in this context do not include financial statements, the assertions therein, or supporting books and records (ISA-580).

Written representations are audit evidence and are necessary information to arrive at audit conclusions. However on their own they can not be relied upon for audit evidence to support audit conclusions therefore they do not affect the nature and extent of other audit evidence that is to be obtained by the auditor. It should be obtained only from management who has responsibility for preparing and presenting financial statements and is knowledgeable about the relevant matters.

ISA 580 requires the auditor to request management to provide written representations that it has fulfilled certain of its responsibilities. It may therefore be appropriate to make management aware that receipt of such written representations will be expected, together with written representations required by other ISAs and, where necessary, written representations to support other audit evidence relevant to the financial statements or one or more specific assertions in the financial statements.

The following issues may be documented in a written representation letter obtained from the management:

1. Assessment of risk of fraud by management
2. Management’s knowledge of identified or suspected non-compliance with laws and regulations
3. Related parties identification by the management
4. Consideration of all aggregated uncorrected misstatements to be immaterial
5. Assumptions used in making accounting estimates are reasonable
6. Consideration of subsequent events by management
7. Consideration of all possible matters and contingencies in going concern review
8. Any restatement made to correct a material misstatement in prior period financial statements that affect the comparative information.

Recommendation

My recommendation to the audit team would be to gather a list of issues about which it is appropriate to require a written representation. During finalization stage of audit, the audit team should write to the client confirming the issues about which they need a written representation from the management. The client must formally write the representation letter including all the issues pointed out along with other necessary representations, sign it and send it to the auditor. The written representation should be dated as nearly as possible, but not after, the date of audit report.