January 6, 2017

The Resignation of PCAOB Board Member Jay Hanson

Right before Christmas, the PCAOB issued this sparse statement about Jay Hanson’s abrupt resignation:

PCAOB Board Member Jay D. Hanson notified the PCAOB today of his resignation from the Board. In his letter to the Board, Board Member Hanson wrote: “This is to notify you that I have submitted my resignation as Board Member of the Public Company Accounting Oversight Board to the Commissioners of the U.S. Securities and Exchange Commission.”

The “Going Concern Blog” notes: “I can’t imagine a new appointee to be named any time soon; soon-to-be-former SEC chair Mary Jo White hasn’t reappointed Jim Doty as chair or a named his successor & his term ended in October 2015.” Remember that Jay dissented a few months ago when the PCAOB approved its latest budget…

Mary Jo’s Last “Speech”? We Need Good Global Accounting Standards

In what might be SEC Chair White’s last speech (technically, a “statement” as it wasn’t delivered anywhere) in that capacity, she urged the FASB & IASB to continue to work together & strive for high-quality globally-accepted accounting standards…

PCAOB Inspections: Parsing the Audit Deficiencies

Mark Zyla give us the highlights from Acuitas’ “2016 Survey of Fair Value Audit Deficiencies”:

– Audit deficiencies are still quite high. The PCAOB considered 39.2% of the inspected audits for annually inspected firms to be deficient in the 2015 cycle. The PCAOB also cited an overall high number of deficiencies for triennially inspected firms.
– The number of deficiencies for annually inspected firms decreased slightly for the first time since we began our survey, from 42.9% in 2014 to 39.2% in 2015. The PCAOB also observed this trend in its 2015 inspection cycle and attributes improved audit quality to the use of practice-aids, checklists, coaching, support teams and efforts to monitor the quality of audit work.
– Audit deficiencies attributable to FVM and impairment engagements continue to be significant and made up approximately one-fourth of all deficiencies. Failures to assess audit risks, test internal controls and to test assumptions underlying prospective financial information are the root causes of most audit deficiencies.
– FVM audit deficiencies are increasingly attributable to business combination engagements, particularly for triennially inspected firms. of the top 25 firms, the incidence FVM deficiencies related to business combinations jumped from an average of 23.1% for 2009 through 2013 to 55.6% in 2014.
– In addition to M&A activity, other economic factors cited by the PCAOB as financial reporting risks are investments in high-yield, hard-to-value securities and impairment risk due to recent fluctuations in oil and gas prices.
– The PCAOB recently reorganized its inspection process and has designated two programs, one for global network firms and one for non-affiliate firms. The global network firms include the six largest annually inspected U.S. firms and approximately 145 of their affiliated firms, primarily located outside the U.S. The non-affiliate firms include four large, annually inspected U.S. firms and an additional 445 domestic and non-U.S. triennially inspected firms.

Broc Romanek