This new proposal follows closely on the heels of guidance recently released for impairment tests of goodwill, and there are similarities in both the objectives and the overall approach. Like the guidance on goodwill, the proposal for other indefinite-lived intangible assets responds to concerns about the recurring cost and complexity of performing impairment tests, and the proposed relief includes an option to use qualitative assessments to determine when additional quantitative testing is necessary.

Our latest issue of the MHM Messenger highlights the proposed changes that would apply to other indefinite-lived intangible assets, including trademarks, licenses and distribution rights.

MHM Messenger 4-12: Tests for Impairment of Intangible Assets

• MHM Messenger 3-12: Partial Deferral of OCI Requirements

What is the MHM Messenger?

The MHM Messenger is a regular publication from Mayer Hoffman McCann P.C. that features the latest news on changes to accounting or auditing standards or regulatory matters and is delivered right to your inbox. Sign up now»

In brief:

• Bruce Murphy is a new Board appointee.
• Michelle Spriggs has joined the Professional Standards Group.
• Hal Hunt is now the National Employee Benefits Plan (EBP) Audit Leader.
• John Cronin will transfer to our New England offices.
• Bob Dowling is a new C0-Attest Leader in our Kansas City office.

You can read more details about these changes on the MHM website.

An Executive Briefing on the topic, developed by MHM’s Professional Standards Group  goes in-depth on the topic with an overview of qualitative assessments, Q&As about testing goodwill for impairment, plus an illustrative case study.

MHM Messenger 2-12: Qualitative Tests for Impairment of Goodwill

If you have any specific questions, comments or concerns about the new qualitative assessments, please contact Keith Peterka of MHM’s Professional Standards Group or your MHM service professional.

Keith’s excerpts are available on the MHM website. The full article is available on the Financier Worldwide website to subscribers of the publication.

Andy Burczyk, a regional attest practice leader at Mayer Hoffman McCann P.C., comments in Compliance Week on the long-standing debate the Public Company Accounting Oversight Board has on whether to impose term limits on audit firms’ engagements with public companies. 

In the article, Andy explains the challenge term limits may have on cost and quality of audits performed for public companies. He provides an example of a global telecommunications company that has 15 Big 4 auditors working year-round on that one audit. He explains that if that company were to hire a new audit firm, those 15 auditors would be out of work (likely facing relocation) while 15 auditors from a new firm would have to be transferred in. “It’s hard for me to see how that would improve audit quality,” he says. “It would make audits more expensive, and it would make the auditing profession a lot less desirable.”

Click here to Read complete article at Compliance Week

Ernie Baugh, national director of professional standards at Mayer Hoffman McCann P.C., comments in Compliance Week on the Public Company Accounting Oversight Board publishing a concept release last week on how to require auditors to give investors a better understanding of where they believe companies may have the greatest risks in their financial statements. 

In the article, Ernie states the idea of an Auditor’s Discussion and Analysis (AD&A), in particular, will be problematic. “The AD&A would be just a blueprint for the plaintiff’s bar,” he says. “No major firm is going to allow engagement partners to write whatever they think without putting it through a stringent review. It’s going to be expensive.” Emphasis paragraphs might be more achievable, he says, but auditors will worry that their judgments about what to emphasize will become targeted for second guessing by regulators and litigators.

Click here to Read complete article at Compliance Week

This FREE webinar will cover several current and emerging accounting issues that will have a significant impact on architectural/engineering/construction (AEC) companies, including certain potential implications of recent exposure drafts issued by the FASB.

Participant Learning Objectives:

• Discuss revenue recognition for AEC companies, including the impact
  of the FASB’s exposure draft on the percentage of completion method
  of recognizing revenue as well as a discussion of the performance
  obligation model for recognizing revenue
• Learn to account for leases by AEC companies including a discussion
  of financing versus non-financing leases and the potential impact of the
  recent FASB exposure draft
• Understand accounting for contingencies and the additional disclosures
  being considered by the FASB
• Hear about joint venture interests and other variable interest entities
  and the impact that ASC 810 (Statement 167) had on the consolidation
  model
• Discuss accounting for multi-employer pension plans

Questions or more information?
Dave Allison | 913.234.1299 | dallison@cbiz.com
Mike Loritz | 913.234.1226 | mloritz@cbiz.com

Click here to download a PDF of the Course Description

“Our system of capital formation relies upon the confidence of millions of investors and millions of savers to invest in the companies they trust,” he said. “The auditor’s opinion is critical to that trust, and there are formidable forces at work against that trust.”

“As with management, audit committees see their jobs as negotiating the lowest possible audit fee, not championing audit objectivity and independence from management,” said Doty. “I think that’s a problem. In this environment, not surprisingly, the scope of the audit has not grown or expanded, even if society’s expectations have. The audit is arguably as important to our society and this culture as electricity or water. To retain that lofty status, auditors and the PCAOB need to do our best to make sure the audit is useful.”

He noted that auditors often face conflicts of interest in evaluating companies’ going concern assumptions. They have to listen to people who both prepare the market valuations for a company and actively trade in the same company’s equities. Conflicts can emerge in audit committees, which are drawn from boards of directors who profit when the company’s stock performs well and who don’t want to know about early warnings that may prove to be self-fulfilling prophecies.

He said these forces can discourage auditor objectivity. “There is no silver bullet to address these challenges,” said Doty. “There are as many problems, I believe, with structural alternatives, such as insurance-based systems. Eliminating the audit requirement entirely and replacing it with insurance would be impractical, and I believe outright reckless.”

Doty said the PCAOB should provide a counterweight against those tendencies. However, Doty rejected proposals by the European Commission and the United Kingdom to require companies to rotate auditors more frequently and reduce market concentration in global audit firms. “The European Commission has sought views on whether the consolidation of the past decades should be reversed by breaking up the Big Four,” he said. “The Financial Reporting Council in the United Kingdom has championed the concept of living wills to plan for the contingency that a large audit firm would fail and thus concentrate the audit market further.”

He said proposals such as these would do little to provide the public with more relevant information and early warnings from auditors. “I do not believe that the global audit firm networks themselves pose a systemic risk to our economy,” said Doty. “Initiatives to shrink the global audit firms would likely weaken their ability to audit large, multinational companies that may be systemically important.”

He said governments should instead focus on regulation. “To protect investors, governments should regulate such firms, not cripple them,” said Doty. “There’s no reason to think that if there were more major firms, they would be more likely to stand up to their clients.”

Doty wants to change the auditor’s report to provide more useful, relevant and timely information, and he plans to start a dialogue with auditors and investors on how that should happen. “How do we close the expectation gap between the investing public and the audit report in a meaningful way?” he asked. The PCAOB expects to issue a concept release early this summer summarizing and analyzing the suggestions it has received from various sources. “The concept release should result in the most substantial changes to the reporting model in half a century,” said Doty.

One of the problems that concerns Doty is the PCAOB’s inability to disclose any of its disciplinary proceedings against auditing firms to the public until all the appeals have been exhausted, as per the Sarbanes-Oxley Act. The PCAOB has asked Congress to change the law.

“In the years since Sarbanes-Oxley was passed, the PCAOB has built an active enforcement program, but unfortunately for investors, audit committees and the audit profession itself, that process takes place largely behind the scenes,” said Doty.

“That confidentiality, we believe, erodes public confidence in the oversight by the board,” he added. “Moreover, the public is denied any benefit from the deterrent effect that the filing of public complaints has on other auditors. Other auditors and their counsel are denied the benefit of timely access to the board’s precedents.”

In addition, the PCAOB plans to convene a task force on audits of fair value measurements, and produce standards governing auditors’ communications with audit committees.

“I’m troubled about reports that some auditors have downplayed the significance of our findings to their clients,” he said. “Audit committees, we think, should be informed about what the failures related to their company are, and they should be skeptical about any effort by the auditors to downplay the importance of it.”

He said the PCAOB is looking for ways to improve audit committee awareness of the risks of accepting an overly rosy characterization of what its inspectors’ findings represent in a particular audit of a company. “I am also concerned about possible disparities between their routine representations of the firms and the public responses they make to us about remediation,” he added. “We intend to look closely at what people are saying in their responses to us as to remediation, and the representations they make as to whether they have in fact remedied, and whether they in fact agree or disagree with the audit failures that we have found, because those are public representations.”

The PCAOB has also been pushing for the ability to conduct inspections of the affiliates used by firms in foreign countries to audit multinational public companies abroad. Those have produced particular problems since the affiliate firms often do not perform up to the level of U.S.-trained auditors, yet U.S. audit partners end up signing off on their work anyway. There have been many problems lately with Chinese companies doing reverse mergers with U.S.-based shell companies to gain access to the public markets in the U.S.

“Surprisingly, many savvy business people and senior policy makers are unaware of the fact that an audit report signed by a large U.S. firm may be based in large part on the work of affiliated firms that are completely separate legal entities in other countries,” said Doty. “For many of these large multinational companies, a significant part of the audit may be conducted abroad, even half the total audit hours in some cases. Nothing wrong with that, on the basis of theory, but when a network firm signs the opinion, the audit is supposed to be seamless and of consistently high quality. Unfortunately, in practice, that is often not the case.”

Based on the international inspections it has conducted abroad, the board has found that multinational audits have proven to be challenging for the big firms. “Our inspectors often see more than the principal audit or signing firm does,” said Doty. “In many cases, principal auditors rely on high-level reports from subsidiary auditors. They often don’t review the work papers of the other auditors. Our inspectors do, and they often find problems in that work.”

Doty noted that the PCAOB inspectors frequently find obvious errors that should have been detected by the principal auditor if they had been communicating better. “Inspectors have found unresolved audit issues between affiliates, disagreements that have not been reconciled,” he said. “One inspection team found a situation where the affiliate audit team pervasively failed to perform audit procedures, unbeknownst to the principal auditor. Once the problem came to light, the primary auditing firm arranged for the team to be removed, but it should not have fallen to the PCAOB to find that problem.”

In several cases, the affiliate had failed to appropriately audit revenue, even though the affiliate reported to the principal auditor that it had done so. Doty said the PCAOB intends to enhance its scrutiny of how principal auditors react to deficiencies in the work they refer to other auditors.

This month, the PCAOB is beginning joint inspections with the U.K. and Swiss audit authorities.

Doty said the PCAOB is also talking with other European countries and is in discussions with Chinese authorities on conducting audits. He hopes to make progress in the next several months.

“This is especially important given the growth in the number and size of Chinese companies seeking access to capital in the U.S. securities markets,” he said. “I believe Chinese authorities are beginning to understand, and do understand, that they have a real interest in solving what has been an impasse in this area.”

1. Determine the approach that they will use for preparing the XBRL files. The choices include: working with their financial printer/filing agent, working with an ERP or financial software vendor, or self-tagging using XBRL specific software.
2. Prepare for live filing by engaging in an internal on-boarding process during which a company can “practice” XBRL tagging, approval, and validation on a previously filed document, when they are not facing an immediate filing deadline. Financial reporting teams can set up a template that can be used to start the live filing process. This will also help them in their work on approval processes and timelines.
3. Set up a pro forma financial statement, possibly from a prior date, and begin the process of selecting tags before the final numbers have been entered into the statements.
4. Continue to work on the tags as they go through one or two rounds of updating numbers.
5. Finalize tag selection before inserting final numbers, as much as possible.
6. Use the SEC’s Web site Previewer to review the document.