Audit News Briefing: 23 October 2015

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

October 21, 2015

Accountancy Live

Listed companies slow to adopt new UK GAAP as deadline looms

According to Deloitte research on annual reports of UK, listed companies are being slow to make the transition to the new UK GAAP financial reporting standards. This is despite the Cutting the Clutter campaign made by the Financial Reporting Council. Please follow link for details: https://www.accountancylive.com/listed-companies-slow-adopt-new-uk-gaap-deadline-looms

October 21, 2015

Accounting Today

What Star Wars Can Teach Us about Fraud and Recovery Audits

APEX Analytix’s senior vice president, global marketing & business development – Joseph Burke – recently featured a Star Wars inspired audit advisory on fraud and recovery.

Here are some excerpts:

• Lesson #1: “It’s a trap!” - Admiral Ackbar. Fraud runs rampant in organizations of any size.
• Lesson #2: “Fear is the path to the dark side.” – Obi-Wan Kenobi. Accounts payable professionals who let fear stand in the way of putting systems in place to detect duplicate payments and fraudulent losses are pulling their company down instead of raising it up.
• Lesson #3: “Do or do not. There is no try.” – Yoda. Many organizations attempt to handle recovery audits, overpayment detection and risk analysis in-house. What they’re finding is that they’re not getting the results they want.
• Lesson #4: “Someday I will be the most powerful Jedi ever.” – Anakin Skywalker. What does it take to create the most powerful of AP departments? Having a clean vendor master list is a powerful start.
• Lesson #5: “The force is strong in this one.” - Darth Vader. Isn’t this what you want your employees and customers saying about you? By putting best practices in place, you’ll have stronger internal employee relations and external supplier relationships.
• Lesson #6: “Hello, I am C-3PO, human cyborg relations. How might I serve you?” – C-3PO. There’s a sometimes unstated fear that duplicate payment and fraud detection technologies will replace a human workforce. The lesson from our goldenrod friend is that technologies are there to enhance, not replace, the workforce.
• Lesson #7: “You were the chosen one!… You were to bring balance to the force, not leave it in darkness.” – Obi-Wan Kenobi. We all have our secrets. In the AP world, for example, there are the dirty secrets of contract noncompliance and the disconnects in the procure-to-pay process that lead to big gaps in negotiated contracts and actual payment.
• Lesson #8: Luke… I am your father.” - Darth Vader. Never doubt that delivering the right punch of information can dramatically change the course of future events. Your punch should be broadcasting—both internally and externally—your intent to fight fraud and root out the source of errors in payments.

Please follow link for details: http://www.accountingtoday.com/news/audit-accounting/what-star-wars-can-teach-us-about-fraud-and-recovery-audits-76150-1.html

October 21, 2015

CGMA Magazine

U.S. Internal auditors receive modest raises

2015 Internal Audit Compensation Survey Study (published October 20, Tuesday) by the Institute of Internal Auditors (IIA) - Although internal auditors in the US and Canada generally received modest pay raises in the past year, the median salaries for many US internal audit positions decreased. Please follow link for details: http://www.cgma.org/Magazine/News/Pages/internal-auditor-salaries-201513222.aspx

October 16, 2015

Accountancy Live

PwC settles £1.6bn auditor negligence claim by subprime lender Cattles

As the case was due to be heard in the High Court in a trial starting this week and scheduled for up to four months – parties appeared before the judge to put forward their agreement. “Cattles, Welcome Financial Services and PwC confirm that they have resolved the claims between them. The terms are confidential,” PwC said in a statement.

Please follow link for details: https://www.accountancylive.com/pwc-settles-%C2%A316bn-auditor-negligence-claim-subprime-lender-cattles

October 12, 2015

Accountancy Live

Grafton Group ends KPMG 20-year audit relationship

In a Grafton Group statement: ‘The board would like to thank KPMG for their service as auditor to the group over a long period and looks forward to working with PwC in the future.’ PwC will take over as auditors with effect for the financial year ending 31 December 2016. Please follow link for details: https://www.accountancylive.com/grafton-group-ends-kpmg-20-year-audit-relationship

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