Accounting
Audit teams missed risks of material misstatement by banks
The Public Company Accounting Oversight Board staff released a
The Spotlight report, “
The PCAOB encouraged firms to consider some of the potential risks, including increased volatility in financial and commodity markets due to fluctuations in interest rates and inflationary trends in an earlier Spotlight report, “
Then, after vulnerabilities in the banking sector were exposed in early 2023 as
In reviewing the survey responses, the PCAOB found that over 70% of the engagement teams it surveyed did not identify a risk of material misstatement due to rising interest rates. Over 95% did not identify a risk of material misstatement related to liquidity. Over 95% did not identify a risk of material misstatement through reviewing information from short sellers, analysts, or other publicly available information, and over 65% did not identify any risk of material misstatement related to concentration risks. Finally, over 95% of the engagement teams did not identify a risk of fraud related to investments or related disclosures. A few firms indicated rising interest rates were a “business-only” risk, relating to the operations of the bank without directly influencing financial reporting.
As they reviewed the banking sector audits completed in early 2023 for financial statements dated in late 2022, PCAOB inspectors noticed a variety of deficiencies. In some instances, for example, engagement teams did not revisit initial risk assessments performed earlier in the year as interest rates continued to rise. Inspectors also observed instances of interest rate volatility being documented as an operational or business issue – with no financial reporting or internal control over financial reporting considerations.
As a result, some engagement teams did not identify in their audits certain risks of material misstatement despite changes in bank-specific or macroeconomic conditions that indicated increased risk in certain audit areas.
In response to the survey results, the PCAOB adjusted its inspection plan, telling its target team to perform procedures on interim reviews of banks in order to provide real-time perspective on important risks. Inspectors also chose additional bank audits for inspection, and worked to ensure emerging banking and economic trends, and banking issues or common deficiencies, were appropriately considered in our selections.
In addition to some common observations from the PCAOB’s inspection activities, the Spotlight report provides a description of good practices observed at audit firms that may enhance audit quality if broadly adopted. The Spotlight provides these insights in in four focus areas: investment securities, allowance for credit losses, deposit liabilities, and loans and related accounts.
The Governmental Accounting Standards Board issued guidance today that will require separate disclosures for certain types of capital assets for the purposes of note disclosures.
GASB Statement No. 104,
The statement requires certain types of assets to be disclosed separately in the note disclosures about capital assets. The intent is to allow users to make better informed decisions and to evaluate accountability. The requirements are effective for fiscal years beginning after June 15, 2025, and all reporting periods thereafter, though earlier application is encouraged.
The guidance requires separate disclosures for four types of capital assets:
- Lease assets reported under Statement 87, by major class of underlying asset;
- Intangible right-to-use assets recognized by an operator under Statement 94, by major class of underlying asset;
- Subscription assets reported under Statement 96; and,
- Intangible assets other than those listed in items 1-3, by major class of asset.
Under the guidance, a capital asset is a capital asset held for sale if the government has decided to pursue the sale of the asset, and it is probable the sale will be finalized within a year of the financial statement date. A government should disclose the historical cost and accumulated depreciation of capital assets held for sale, by major class of asset.
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Sax, Paterson, announced that its annual run/walk event SAX 4 Miler, supporting the Child Life Department at St. Joseph’s Children’s Hospital in Paterson, has achieved $1 million in total funds raised since its inception in 2012.
Withum, Princeton, rolled out a new outsourcing service offering as part of its sustainability and ESG practice designed to help companies comply with the European Corporate Sustainability Reporting Directive, the mandate requires reporting of detailed sustainability performance as it pertains to the European Sustainability Reporting Standards , effective January 2023.
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