Mandated Reporting of Critical Audit Matters

The Securities and Exchange Commission (SEC) has issued a revised model for public companies’ audit reports. Previously a simple pass-fail statement was sufficient to meet the SEC requirements; but in the interest of investors and stakeholders understanding of a public company’s financial reporting practice, the reporting of critical audit matters (CAMs) is becoming mandatory.

Understanding Pay-Ratio Disclosures

Disclosure of the ratio of CEO’s annual compensation to that of median employees is a requirement for certain public companies as of 2018. The requirement gives leeway in the calculation, allowing ratios to vary greatly even within the same industry. Because of the ambiguity of ratio disclosure, investors and public companies should use caution when evaluating companies based on ratio disclosures.

What’s All the Buzz About XBRL?

The Securities and Exchange Commission (SEC) dictates that public companies have to present their financial statements in the eXtensible Business Reporting Language (XBRL) format as an exhibit to their regulatory filings. XBRL has more uses than just for reporting to the SEC. Public companies, as well as private companies and financial statement users, will find many compelling reasons to expand their use of XBRL data.

Internal Control Testing: What You Need to Know About the Role Sampling Plays

Before giving the green light on your financial statements, auditors have to prove the effectiveness of internal controls. However, because of time and budget constraints, trying to analyze every transaction posted to the general ledger is impractical and not remotely possible. Preferably, auditors pick out and analyze a representative sample of transactions in order to form assertions about the whole population.

Corporate Culture: Rotten Apples Could Spoil Your Financials

Auditors regularly comment that the tone at the top of the company flows downward, seeping into every employee level. Would you consider the work atmosphere of your company to be ethical and open? Corporate culture assessments can assist in preventing and uncovering unethical and criminal behaviors, if not. To do a thorough job, however, your external auditors will typically need to work closely with people inside your company. Read on for ways you can facilitate this essential part of the audit process.

Here’s how to classify shareholder advances

Those who have closely-held businesses will need to advance money to their companies at times, whether to bridge a temporary downturn or to supply additional cash flow for a major expense, an expansion or something else. Are these advances supposed to be classified as bona fide debt, additional paid-in capital or something in between? Your answer, under U.S. Generally Accepted Accounting Principles (GAAP), will be determined by the facts and conditions of the transaction.

Fixed vs. Variable Costs: How to Compute Breakeven

Breakeven analysis can be helpful when analyzing the effects of a cost reduction plan, investing in new equipment, or launching a new product. Calculating the breakeven point is pretty straightforward as you apply basic information from your company’s income statement. Here are the fine points.