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As the PCAOB continues to toy with the long-floated idea of “expanded” audit reports – which means that auditors would be required to include some narrative in their boilerplate – I thought it would be helpful to provide an example of what that might look like. Since 2012, companies in the UK have been required to provide this type of expanded audit report. And last year’s audit report (see page 130) for Rolls Royce has been held up as one of the best since the company & its auditor – KPMG – go further than what the UK’s Financial Reporting Council’s rules require. Here’s an excerpt from this CFA Institute Blog:

In short, the auditor reports the greatest risk of material misstatement and how it responded to those risks. KPMG could have stopped there to be in compliance with the new standard, but that wasn’t good enough for Rolls Royce. With the investor user in mind, KPMG in cooperation with management took it a step further and included the findings. Aside from the communicative value of this information to investors, extending the auditor’s report to include the findings demonstrates a willingness on the part of the auditor and management to work together toward meaningful communication to investors — a major departure from past practice.

In addition, check out this explanation from KPMG about what they did – and this article about the UK requirements…

PCAOB Seeks Comment on Specialists Use

Yesterday, the PCAOB issued this Staff Consultation Paper – “The Auditor’s Use of Specialists” – that seeks input on potential changes to standards for the auditor’s use of the work of specialists, specifically the objectivity and oversight of specialists and the use of their work in audits.

BE-10 Reports: Deadline Flexibility & How to File

Here’s a question posted yesterday on our “Q&A Forum” (#8437): “Tomorrow, May 29, 2015 is the due date. Does anyone know if the BE-10 reports must be in the hands of the BEA by tomorrow or is it sufficient if it is postmarked with tomorrow’s date? Also, any reason we can’t Fed Ex the survey? The instructions however state to send the reports filed by mail “through the U.S. Postal Service.”

Here’s an answer that I received from Gibson Dunn’s David Wolber: “I haven’t heard officially from BEA on the due date aspect – and haven’t seen much explicit guidance – but I note the BE-10 Instructions say: ‘A fully completed and certified BE-10 report comprising Form BE-10A, and Form(s) BE-10B, BE-10C, or BE-10D is due to BEA no later than May 29, 2015 for U.S. Reporters required to file fewer than 50 forms, and June 30, 2015 for U.S. Reporters required to file 50 or more forms.’ This would tend to imply the report must be in there hands by sometime on Friday.

However, note that the BEA recently extended the deadline for all ‘new filers’ to June 30th. A new filer is ‘a U.S. company or person that is required to file on the BE-10 survey but has never filed any BEA survey of U.S. direct investment abroad, including the BE-10, BE-11 and BE-577 surveys.’ This is probably good news for quite a number of folks. Also, it appears that 30- and 60-day extensions are being readily granted.

Regarding method of delivery, BEA guidance in the BE-10 Instructions and in FAQs on the website contemplates a range of acceptable methods including mail, hand delivery and fax. Although I haven’t seen anything official from BEA on this, overnight would seem to be a safe choice, and I suspect that, as long BEA gets the report at the end of the day, they shouldn’t care too much if it arrived via USPS or some other carrier such as FedEx.”

See these memos posted in our “Foreign Subsidiaries” Practice Area…

– Broc Romanek