Audit News Briefing: 15 December 2015

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

December 8, 2015

Accountancy Age

Audit firm governance code to champion quality and transparency

Based on the feedback from early-year consultation of the Audit Firm Governance Code provisions held by FRC – the role of independent non-executives was revealed to be significant but could be further strengthened. Moreover, investors require more direct appraisal from NED regarding firms’ audit performances.

FRC CEO, Stephen Haddrill said: "The audit firm governance code has led to an enhancement in governance of the major firms who have put significant effort into adopting its key provisions… Above all it creates, through the independent non-executives, an independent voice and challenge at the heart of the firms, which is of particular importance in view of their public interest responsibilities. The proposed new provisions will strengthen this voice further, provide clarity about the code's purpose particularly in relation to audit quality and encourage further transparency to investors."

Please follow link for details: http://www.accountancyage.com/aa/news/2438245/audit-firm-governance-code-to-champion-quality-and-transparency

December 7, 2015

PwC

PwC appointed as auditor to probe Vatican finances

PwC shall conduct a comprehensive external audit of the Vatican’s accounts. This is to support the Pope in his zeal to excommunicate corruption from the church. The Big Four shall work with Australian Cardinal George Pell who is head of secretariat that was formed to oversee papal finances following a series of scandals.

Please follow link for details: http://www.accountancyage.com/aa/news/2438045/pwc-appointed-as-auditor-to-probe-vatican-finances

December 4, 2015

Accounting Today

U.S.: Litigation Environment Favorable for Audit Firms (for Now)

Law firm Willkie Farr & Gallagher partner, Michael Young, specializes in defending audit firms. He said in an auditing conference in New York that –

“The litigation environment toward the accounting profession right now is about the best I have seen it in more than 30 years of doing this… Litigation against the profession is down, and just as important, the ability of the profession to effectively tell its story, to effectively present its defenses, is better than at any other time while I have been practicing law. But the times are changing, and in fact they have already started to change.”

Much of the litigation in recent years has come from the financial crisis but SEC is sending the message that it is back on the accounting beat, Young warned.

Please follow link for details: http://www.accountingtoday.com/blogs/debits-credits/news/litigation-environment-favorable-for-audit-firms-for-now-76616-1.html

Audit Firm: KPMG Staff Arrested in Tax evasion Investigation

Her Majesty's Revenue and Customs-HM Revenue and Customs or HMRC is a non-ministerial department of the UK Government responsible for the collection of taxes, the payment of some forms of state support, and the administration of other regulatory regimes including the national minimum wage.

Four partners at the Belfast office of KPMG have been arrested in connection with suspected tax evasion. HMRC officials visited the global accountancy firm's city Centre office on Wednesday and detained the men. They are Jon D'Arcy, Eamonn Donaghy, Arthur O'Brien and Paul Hollway, the firm's most senior staff in Northern Ireland.

KPMG said it is cooperating with the investigation and the four men have been placed on "administrative leave". The firm added that it does not have "any indication that this investigation relates to the business of KPMG or the business of our clients". The firm added that it does not have “any indication that this investigation relates to the business of KPMG or the business of our clients”.

HMRC said: “Officers arrested four individuals from Northern Ireland [on Wednesday] in connection with suspected tax evasion. We can’t comment further.”

KPMG has been at the fore of a campaign to persuade the Treasury to grant Northern Ireland special corporation tax status. Among the other KPMG executives arrested on Wednesday was Paul Hollway who is the firm’s head of corporate finance in Ireland. Mr Donaghy is KPMG's head of tax in Belfast and has been heavily involved in the campaign to have corporation tax powers devolved to the Northern Ireland Executive. As well as their work for KPMG, the four men are directors of a property investment company called JEAP Ltd. The firm suffered heavy financial losses when the property market crashed in 2008. However, it is unclear at this stage if that forms part of the HMRC investigation.

Additional Thoughts

Tax evasion and tax avoidance are issues which require the utmost care and attention from the auditors and authorities as economy can suffer huge losses due to this. Auditors should be very careful and should look out for transactions and other matters which may indicate the possible tax evasion. Moreover while providing taxation consulting services to its corporate clients the auditors should ask for all the pertinent information from clients to avoid any chance of the possible tax evasion.

Sources:

• http://www.bbc.com/news/uk-northern-ireland-34931675
• http://www.theguardian.com/business/2015/nov/26/kpmg-partners-arrested-hmrc-tax-evasion-inquiry

Audit News Briefing: 3 December 2015

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

December 2, 2015

Accounting Today

SEC Penalizes Grant Thornton for Ignoring Red Flags in Audits

In a statement – SEC’s Division of Enforcement Director Andrew J. Ceresney said that “Audit firms must be held responsible when systemic failures such as inadequate engagement procedures, staffing, or supervision cause the firms’ work to fall significantly short of expected standards, particularly when multiple audits and engagements are involved.”

During audits of two public traded companies under SEC enforcement actions, Grant Thornton and two of its partners disregarded red flags and fraud risks. For improper accounting and other violations, the firm has agreed to pay $4.5 million to settle charges. They admitted wrongdoing and agreed to forfeit approximately $1.5 million in audit fees and interest plus pay a $3 million penalty.

Please follow link for details: http://www.accountingtoday.com/news/audit-accounting/sec-penalizes-grant-thornton-for-ignoring-red-flags-in-audits-76580-1.html

December 1, 2015

PwC

Our focus on audit quality

PwC Assurance Quality Managing Partner Michael Gallagher:

“We understand the importance of maintaining our focus on delivering quality, being transparent about our process, continuously investing in innovation, and further developing the competencies that will allow us to solve important problems.”

PwC leaders are proud of the quality of their audits and, in particular, the progress they have continued to make, such as: 94% compliance rate of audit engagements selected for internal inspection; 99% audit professionals reported receiving consistent messages about the importance of audit quality; and 97% audit professionals reporting that they understand the practice’s objectives regarding audit quality.

The support on transparency, people strategies and new leadership framework to assess PwC professionalism were also discussed.

Please follow link for details:  http://www.pwc.com/auditquality

November 26, 2015

Accountancy Age

Has the value of audit to investors improved post-HBOS?

After the collapse of HBOS, the Bank of England’s 500-page report did not satisfactorily show how or why the failure happened. But it accordingly provided some significant points regarding the value of audit.

Excerpts from Deputy Editor Richard Crump’s Opinion:

“The ultimate arbiter of value around audit will be on how these challenges are articulated to the investment community. As is so often the case - concerns get raised about management assumptions but they never found their way through to the investment community - until a long way down the line… Improvements have been made to how audit is undertaken, so will the enhanced auditor reports complete the task? There is still some way to go for audit to deliver real value to investors.”

Please follow link for details: http://www.accountancyage.com/aa/opinion/2436695/has-the-value-of-audit-to-investors-improved-post-hbos

Audit Method: Going Concern Assessment

ISA 570 requires an auditor to obtain and evaluate management’s assessment of the entity’s ability to continue as a going concern. Issues to consider by the auditor while evaluating the going concern assumption by management are as follows.

Are any events or conditions which may cast significant doubt on the entity’s ability to continue as a going concern has been identified? Examples of conditions and events can be traced from paragraphs A2 of ISA 570.

Based on our inquiries of management and our review of their assessment, were any events or conditions noted that may occur shortly beyond the management assessment that were so significant that they may cast doubt on the entity’s ability to continue as a going concern?

If audit team answer to the above two questions is “NO” then the evaluation is complete but if the answer is “YES” then the following additional audit procedures need to be undertaken.

Evaluate management’s plans for future actions in relation to its going concern assessment, whether the outcome of these plans is likely to improve the situation and whether management’s plans are feasible in the circumstances.

Stated plans: Obtain and discuss with management its plans to deal with the identified risks. Indicate the individuals interviewed.

Supporting evidence overcoming substantial doubt: Indicate below the elements of management's plans that are particularly significant to overcoming the substantial doubt about the entity’s ability to continue as a going concern. Examine and describe evidence that supports those elements. Elements include Third-party guarantee, Debt restructuring or new borrowings, Liquidation of assets, Reduction or delay of expenditures, Increase in revenues, Increase in equity etc.

Third party guarantees and other financial restructuring agreements: If there are significant guarantees of financial support from a third party (such as the entity’s parent company, another shareholder, an affiliate or a general partner of a limited partnership):

Prospective financial information: Although this information is not as persuasive as evidence provided by third parties, we usually consider it as necessary to support management's plans.

Management's representation: Obtain written representation from management and where appropriate from those charged with governance regarding management's plans and conclusion about the appropriateness of the going concern assumption and the reasonableness of related disclosures in the financial statements.

Practice

Based on the audit evidence obtained, conclude whether a material uncertainty exists relating to events or conditions, that individually or collectively, and may cast significant doubt on the entity's ability to continue as a going concern. A material uncertainty exists when the magnitude of its potential impact and likelihood of occurrence is such that, in our judgment, appropriate disclosure of the nature and implications of the uncertainty is necessary for the fair presentation of the financial statements.

Other articles on related topic:

New Regulations for Auditors: European Revolt

Audit Firm: ACCA exams

Audit firms are interested to hire and retain qualified accountants. For example, Big4 firms provide support to their employees during their study in college to obtain qualification.  ACCA (The Association of Chartered Certified Accountants) is one of the professional accounting bodies certifying accountants through exams and experience. ACCA exams test the students very rigorously and they are not easy to pass if you are not well prepared ahead of time for it. Here are few tips about approaching the ACCA exams that will prove to be helpful in your preparations and to get you pass these exams.

Familiarity with Syllabus

Get yourself familiar with the syllabus of ACCA certification. ACCA has two levels; one is the Fundamental level that includes 9 papers from F1 to F9. And the other Level is called Professional level that include a total of 7 papers from P1 to P7 but you will be given a choice to attempt any two papers among P4 to P7. Choose among the papers from P4 to P7 wisely as you may get stuck in one or two papers in the end and it can waste your exam attempts, time and money.

Learning material

Choosing your books from which to study for the exams is a very major step as it can determine your success or failure from the start. ACCA's new Approved Content Providers are:

• Becker Professional Education
• BPP Learning Media
• Kaplan Publishing

Exam Paper Analysis

After when you have finished your course well at least once you are ready to take a look at the exam papers. Analyzing exam papers for trends is very important as it can give you clues about which topics to give more weightage and which topics demand less preparation. Try to attempt the full paper in actual time bounded exam pressure simulated scenario. This will give you a very good idea of where you are lacking. Do you need to concentrate more on few topics or you need to grasp the important topics well so as to finish the paper in time.

On Exam day

Sleep well before exam day is a cliché we hear from our seniors and teachers. This is actually very important for your performance on exam day. If you will feel relax you will perform and deliver in a much better way. ACCA exams have 15 minutes reading time for reading the question paper. Use this time efficiently. Plan the first question you have to answer when the reading time is over. Also you can arrange the questions in the in the order of difficulty during that time. Attempt the easy questions first and then go for the difficult ones. When answering questions, understand the requirements of the question and write only to the point answers. Remember DO NOT leave any question unanswered of you have time remaining. There is no negative marking in these exams and writing one or two important concepts well, even if you don’t know the complete answer will secure you the minimum marks that will help you to cross the minimum passing threshold for the whole paper.

After the exam

Try avoid discussing the paper if you are going to attempt another paper in a day or two as all you have in your hands now is to get ready for the next paper and try not to repeat the mistakes which you have committed in today’s paper.

In the end I would share this beautiful quote with you.

The reason why most people face the future with apprehension instead of anticipation is because they don't have it well designed." -- Jim Rohn.

Sources:

• http://www.accaglobal.com/gb/en/discover/about.html
• http://www.accaglobal.com/ca/en/student/your-study-options/alp-content.html
• http://www.accaglobal.com/us/en/student/exam-support-resources.html

Disclaimer:
"This group is not associated with or approved by ACCA and the views expressed on this page do not necessarily reflect the views of ACCA".

i-Monday: You Are Absolute Center of Universe

“Here is just one example of the total wrongness of something I tend to be automatically sure of: everything in my own immediate experience supports my deep belief that I am the absolute center of the universe; the realist, most vivid and important person in existence. We rarely think about this sort of natural, basic self-centeredness because it's so socially repulsive. But it's pretty much the same for all of us. It is our default setting, hard-wired into our boards at birth. Think about it: there is no experience you have had that you are not the absolute center of. The world as you experience it is there in front of YOU or behind YOU, to the left or right of YOU, on YOUR TV or YOUR monitor. And so on. Other people's thoughts and feelings have to be communicated to you somehow, but your own are so immediate, urgent, real.”

David Foster Wallace was an English and creative writing professor, as well as an influential author. His most famous works were Infinite Jest and The Pale King, a novel of his which was found unfinished, three years after Wallace committed suicide.

Despite the internal struggles Wallace faced, this quote of his reminds us that it’s okay to be egocentric, because that’s how we were created and that’s all we’ve ever know. By realizing this, we are encouraged to own that self-centeredness, utilizing ourselves to be the best we can be, and feeling okay about putting our own needs first.

From: Commencement address delivered by the late David Foster Wallace, professor at Pomona College, CA and author, for the 2005 graduating class of Kenyon College.

Picture reference:

https://en.wikipedia.org/wiki/David_Foster_Wallace_bibliography

Week-End: Accounting Jokes

Jokes that only accountants and auditors will love J

• What do you call a trial balance that doesn't balance? A late night.
• What do you call an accountant with an opinion? An auditor.
• A fine is a tax for doing wrong. A tax is a fine for doing well.
• Why did the accountant cross the road? Because she looked in the files and did what they did last year.
• It's accrual world.
• How can you tell when the chief accountant is getting soft? When he actually listens to marketing before saying no.
• An accountant is someone who solves a problem you didn't know you had in a way you don’t understand.

 See more at: http://www.businessinsider.com/jokes-for-accountants-2014-5

Audit News Briefing: 27 November 2015

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

November 24, 2015

CFO Daily News

Auditors scrutinized by regulators when companies face fraud allegations

Three powerful regulatory entities were highlighted in the Internal Controls segment of CFO Daily last Tuesday (Nov 24) –

·         the Department of Justice (DOJ)

·         the Securities and Exchange Commission (SEC) and

·         the Public Company Accounting Oversight Board (PCAOB).

One of these three formidable entities could get attention whenever financial fraud allegations arise at any public company. DOJ leads the pack by receiving complaints and commencing criminal investigation. Collaboratively, the SEC carries out two federal initiatives aimed at detecting and prosecuting financial fraud:  the Financial Reporting and Audit Task Force and Operation Broken Gate. PCAOB investigations originate from several sources, including the PCAOB’s own investigations, information disclosed in SEC or other agency investigations, or other public sources.  The PCAOB has authority to investigate accounting firms and associated persons primarily to ensure compliance with professional responsibilities.

Strong compliance program determines what action or sanction may necessarily be imposed. Strong internal controls is said to be the key to enable auditors to do their jobs more effectively and efficiently.

Please follow link for details:

http://www.cfodailynews.com/auditors-scrutinized-by-regulators-when-companies-face-fraud-allegations/

November 20, 2015

Accounting Today

U.S.: CPA Pleads Guilty in Accounting Fraud Scheme

Last Wednesday (Nov 18), a New York CPA firm partner pleaded guilty to participating in a multimillion-dollar accounting fraud scheme. He performed year-end audits of the financial statements for an unidentified Florida-based cosmetics company.

“Marc Wieselthier has admitted to lying about the financial condition of a company to induce banks to lend the company millions of dollars,” said Manhattan U.S. Attorney Preet Bharara in a statement. “Relying on false information, the banks made loans that ended up defaulting with nearly $5 million still owed. Wieselthier now joins his co-conspirators in awaiting sentencing for his crime.”

Please follow link for details: http://www.accountingtoday.com/news/audit-accounting/cpa-pleads-guilty-in-accounting-fraud-scheme-76480-1.html

November 16, 2015

Accounting Today

PwC Transforms Audit Practice with Data Analytics

PricewaterhouseCoopers audit practice is becoming more sophisticated as the firm is leveraging data analytics technology. The transformation includes documentation or evidence management as well as audit process automation.

Bill Brennan, managing partner of assurance transformation at PwC – said:

·         “We’d like to think that we have been transforming the way we audit for decades, especially in light of everything that’s been going on in the marketplace, particularly with the regulatory changes that have impacted us,”

·         “Starting north of 10 years ago, we introduced to our auditors worldwide Aura. It’s basically the way we execute the documentation and where our evidence resides for our audit efforts. Aura is used by almost 100,000 people all around the world.”

·         “We automate certain processes that we’ve been doing manually for decades, maybe even a century,”

·         “The second piece is process. How can we improve the process by which we execute the audits, the approach, if you will. We have a tagline called ‘Engagement, Performance and Quality.’ It takes project management process improvement and injects it into the equation. You can have the greatest technology in the world, but if you don’t have good processes, it’s going to be useless. Then the last thing is people. How do we develop our people? How do we train them? How do we equip their skills such that they can adapt to the changes in not only the regulatory environment, but our own audit approach. How can we teach them to leverage data and analyze data in a wholesome way? You can have a great tool, but if the people are not equipped to do it, then it’s useless.”

Please follow link for details: http://www.accountingtoday.com/blogs/debits-credits/news/pwc-transforms-audit-practice-data-analytics-76435-1.html

Audit Method: Accounting Estimates

Accounting estimate as defined in ISA 540 – “An approximation of a monetary amount in the absence of a precise means of measurement. This term is used for an amount measured at fair value where there is estimation uncertainty, as well as for other amounts that require estimation. Where this ISA addresses only accounting estimates involving measurement at fair value, the term “fair value accounting estimates” is used.”

Some financial statement items cannot be measured precisely, but can only be estimated. For purposes of this discussion, such financial statement items are referred to as accounting estimates. The nature and reliability of information available to management to support the making of an accounting estimate varies widely, which thereby affects the degree of estimation uncertainty associated with accounting estimates. The degree of estimation uncertainty affects, in turn, the risks of material misstatement of accounting estimates, including their susceptibility to unintentional or intentional management bias.

Test of accounting estimates for bias

First perform a retrospective review of significant accounting estimates reflected in the financial statements of the prior year to determine whether management judgments and assumptions relating to the estimates indicate a possible bias on the part of management.

The significant accounting estimates selected for testing should include those that are based on highly sensitive assumptions or are otherwise significantly affected by judgments made by management. Consider the results of this retrospective review in evaluating the current-year estimates. If we identify a possible bias on the part of management in making prior-year accounting estimates, we should evaluate whether circumstances producing such a bias represent a risk of a material misstatement due to fraud.

Secondly, consider whether differences between estimates best supported by the audit evidence and the estimates included in the financial statements, even if they are individually reasonable, indicate a possible bias on the part of the entity's management. If so, reconsider estimates taken as a whole.

Practice

For accounting estimates (e.g., liabilities for certain employee benefits plans and legal contingencies), evaluate the reasonableness of the methods and assumptions management used to make the estimates. If management's methods and assumptions were reasonable, test the data and assumptions underlying the estimates, and re-compute the estimates. If management's methods and assumptions were not reasonable, develop an independent range of reasonable estimates and determine whether management's estimates fall within that range. 

Audit Firm: Big4 Financial Performance 2015

The Big Four firms have recently announced their results for the fiscal year 2015. PwC has retaken number one spot from Deloitte as the world’s largest firm by revenue. KPMG is yet to announce its results.

A brief overview of the performance of these firms in comparison with the previous year is as follows.

PwC

PwC has recorded a global annual revenue increase of 10% to $35.4bn (£23.34bn), which represents its strongest growth in 10 years. Consulting now accounts for more than 30% of PwC’s total revenues after growing 18% to $11.2bn during the 2015 fiscal year. This was boosted by the acquisition of Strategy& (formerly Booz & Company) in April 2014. Revenues in PwC’s auditing division grew more slowly, rising 6.2 per cent to $15.2bn in a year marred by the profit misstatement scandal at Tesco, a PwC audit client.

According to Dennis Nally, Chairman of PricewaterhouseCoopers International Limited,

“As we look at the results for the last 12 months, all of our lines of service showed really positive growth – led by Advisory which is up 18%, Tax up 7% and our Assurance business notwithstanding some really difficult competitive market pressures – up 6%.”

DELOITTE

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. Deloitte provides audit, consulting, financial advisory, risk management, tax and related services to public and private clients spanning multiple industries.

Deloitte member firms (Deloitte) reported aggregate revenues of US$35.2 billion for the fiscal year ended 31 May 2015 (FY15), representing 7.6 percent growth in local currency terms.

EY

EY announced combined global revenues of US$28.7b for its financial year ended 30 June 2015. This represents an 11.6% increase over financial year (FY) 2014 revenues in local currency, outpacing FY14 growth (which had increased by 6.8% over FY13).

All of EY’s service lines continued to grow in FY15 ahead of their FY14 growth: Advisory grew 17.6% (vs. 14.4% growth in FY14); Assurance 8.1% (vs. 4.5% in FY14); Transaction Advisory Services (TAS) 15.5% (vs. 6.5% in FY14); and Tax 10.3% (vs. 4.3% in FY14).

In FY15, EY headcount reached 212,000 globally – an all-time high.

A graphical representation of the performance of these three firms is shown for comparison purpose.

Head Count Graph

 Revenue Graph

KPMG

KPMG is due to report its 2015 results in December. KPMG International Cooperative ("KPMG International") is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. We are presenting here KPMG’s 2014 and 2013 performance comparison.

The KPMG network delivered strong growth and recorded-high revenues of USD24.8 billion for the 2014 fiscal year, an increase of 6.3 percent in local currency terms over the prior year (2013), recording growth across Audit, Tax and Advisory.

Head Count Graph

Revenue Graph

References:

• http://www.pwc.com/gx/en/about-pwc/global-annual-review-2015/campaign-site/pwc-global-annual-review-2015.pdf
• http://www2.deloitte.com/content/dam/Deloitte/global/Documents/About-Deloitte/gx-gr15-summary-final.pdf
• http://www.ey.com/GL/en/Newsroom/News-releases/news-ey-reports-2015-global-revenues-up-eleven-point-six-percent
• https://home.kpmg.com/xx/en/home/media/press-releases/2014/12/kpmg-delivers-strong-growth.html