PCAOB Publishes Staff Inspection Brief Previewing 2016 Inspection Findings

Issued: November 10, 2017

Summary: 
This brief highlights certain observations from 2016 inspections of auditors of public companies and other issuers, including three recurring areas where audit deficiencies were most frequently identified

• Assessing and responding to risks of material misstatement. Example: the auditor did not perform tests of details specifically related to fraud risks assessed by the auditor.
• Auditing internal control over financial reporting.  The most frequent ICFR audit deficiencies were insufficient testing of the design and operating effectiveness of selected controls, particularly those controls that included a review element.
• Auditing accounting estimates, including fair value measurements.  Auditors did not fully understand how a company's accounting estimates were developed, or did not sufficiently evaluate the assumptions used by management.  Common occurrences are related to evaluating impairment analyses for goodwill and the valuation of assets and liabilities acquired in business combinations.

PCAOB Staff examined portions of more than 780 public company audits in 2016 and reviewed the system of quality control at more than 190 firms.

Click here for: Staff Inspection Brief on PCAOB Website
 

PCAOB Publishes Staff Guidance on Implementing Changes to Auditor's Report

Issued: December 4, 2017

Summary: 
The guidance addresses key changes to the auditor's report required this year (effective for audits for fiscal years ended on or after December 15, 2017), including the form of the auditor's report, disclosure of auditor tenure, a statement on auditor independence, and a required explanatory paragraph on Internal Control Over Financial Reporting (ICFR) in certain circumstances.

The guidance also provides a high-level overview of the requirements regarding Critical Audit Matters (CAMs).  Auditor communication of CAMs is permissible on a voluntary basis but will not be a requirements until audits of fiscal years ending on or after June 30, 2019 (for audits f large accelerated filers), or December 15, 2020 (for audits of all other companies to which the requirements apply).

Link to Staff Guidance on PCAOB website:
https://pcaobus.org/Standards/Documents/Auditors-Report-Staff-Guidance.pdf

SEC - Revision to Small Company Definition Planned for Fall 2018

Issued: January 8, 2018

Summary: 
The SEC plans to finalize a rule revising the definition of "smaller reporting company" in the fall of 2018.  The revision is intended to let more companies file registration statements and periodic reports with a lighter load of disclosures.  The current threshold is set at $75 million in public float, and the SEC in June 2016 proposed raising it to $250 million.

If the $250 million threshold is adopted, 42% of public companies will qualify as smaller reporting companies and be eligible for a number of exemptions from Regulation S-K (disclosure requirements for registration statements and annual and quarterly filings), and regulation S-X (form and content of financial statements in SEC filings).  

If you have any questions or would like to receive more information, please contact Alex Brinister: abrinister@mslcpa.com, 407.740.5400.