ATLANTA, Dec. 2, 2016 /PRNewswire/ -- Mark Zyla, managing director of Atlanta-based valuation and litigation consultancy firm, Acuitas, Inc., released the firm's "2016 Survey of Fair Value Audit Deficiencies," its fifth annual analysis of recent Public Company Accounting Oversight Board (PCAOB) inspections. Acuitas' survey is intended to assist financial statement preparers, auditors, and valuation specialists in understanding the root causes of fair value measurement (FVM) and impairment audit deficiencies. There are a number of key findings and trends noted by the analysis of the 2009 to 2014 inspection reports and from PCAOB Inspection Briefs:
- 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.
The complete survey is available from Mark Zyla, a managing director of Acuitas, Inc., who can be reached at firstname.lastname@example.org. You are also welcome to quote Zyla using any of the bullet points above.