GODFREY HODGSON HOLMES TARCA

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GODFREYHODGSONHOLMESTARCA

• CHAPTER 14
• EMERGING ISSUES IN ACCOUNTING AND AUDITING

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XBRL

• XBRL Extensible business reporting language
• Allows financial information to be presented in
  an interactive way that in turn allows individual
  items of data to be extracted by software to
  produce reports custom designed by individual
  users
• SEC (2008)
• 500 of largest US companies
• 2009 financial reports

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XBRL

• XBRL will loosen the control managers currently
  have on data aggregation decisions and place
  their performance under greater scrutiny

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The effects of corporate collapses and
Sarbanes-Oxley Act (2002)

• High profile collapses in early 2000s changed the
  image of accounting and auditing and its
  regulatory environment
• Criticism of auditor independence and corporate
  governance
• SOX
• peer reviews replaced by PCAOB inspections
• restrictions on provision of non-audit services
  by audit firms to their audit clients

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Issues surrounding the application of fair
value accounting during the global financial
crisis

• Some believe the practice of fair valuing assets
  was contributing factor
• it requires the write-down in the value of some
  assets when markets are turbulent
• marking financial assets to market
• Considerable dispute about this
• SEC investigation (2008)
• recommendations offered for improving fair value
  accounting

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Is the criticism leveled at fair value
measurement fair?
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Reactions by standard setters

• IASB (October, 2008) changed rules so that losses
  from changes in market values of financial assets
  could be reclassified under certain circumstances
  avoiding charging mark-to-market losses to the
  income statement
• FASB (2009) introduced a ruling to allow banks to
  use their own judgement in determining the fair
  value of assets, rather than using markets

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Auditors and the global financial crisis

• The GFC could lead to regulatory action affecting
  auditors
• relatively little attention paid to the auditors
  role in the crisis
• the accounting profession and regulators have
  proactively issued guidance
• auditors of banks later suffering financial
  difficulties can expect to come under scrutiny

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IASB and FASB convergence project

• 2002 and 2006 convergence agreements
• SEC issued (2008) a roadmap for the use of IFRS
  by US companies by 2014
• markets becoming increasingly global
• new investment opportunities to US investors
• would make firms from different countries easier
  to compare
• progress toward 7 milestones to be assessed in
  2011

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Issues in IFRS-US GAAP convergence

• It is not certain that the US will adopt IFRS
• Some argue that competition between standard
  setters is desirable

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International auditing standards

• Auditing standards are also being
  internationalised
• have been redrafted
• growing international acceptance
• A move to IFRS would require US auditing
  standards to change from assessing conformity
  with rules to assessing true and fair

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International auditing standards

• Both the auditing and accounting standards boards
  must deal with issues relating to their
  independence and governance before both sets of
  standards are truly global

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Sustainability accounting, reporting and
assurance

• Companies are issuing sustainability reports
• Sustainability accounting is a subset of social
  accounting
• Sustainability can be regarded as meeting the
  needs of the present without compromising the
  ability of future generations to meet their own
  needs
• environmental protection
• justice between peoples and generations

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Recent developments in sustainability
reporting

• Global reporting initiative (2006)
• Accounting for carbon emissions
• Sustainability reports are increasingly being
  either audited or reviewed by independent
  auditors
• companies with the most to gain from increasing
  the credibility of their reports are more likely
  to seek assurance
• little authoritative guidance

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Trends in sustainability reporting

• Some companies are now seeking assurance for
  their sustainability reports

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Other non-financial accounting and reporting
issues

• Water accounting applies accrual accounting
  concepts to water resources
• Greenhouse gas emission accounting
• Both attempt to provide data on scarce resources
  other than those traditionally captured by
  financial accounting systems

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Summary

• One of the major influences on accounting and
  auditing practice and research is the growing
  internationalisation of accounting and auditing
  standards
• There have been recent developments in
  sustainability reporting and assurance
• Water accounting and greenhouse gas emission
  accounting are new developments

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Key terms and concepts

• XBRL
• Sarbanes-Oxley Act 2002
• Fair value accounting and the GFC
• Auditors and the GFC
• Convergence project
• Sustainability accounting and assurance
• Water accounting
• Greenhouse gas emission accounting

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