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Financial statement audits are not just a compliance exercise, but also an opportunity to gain knowledge that can generate positive business results, according to a new survey.
In many cases, though, companies are not taking full advantage of the insights that audits provide, a survey of 300 executives and 100 audit committee members by Deloitte’s US audit practice revealed.
According to the survey report, which was published Wednesday:
- More than three-fourths (79%) of executives and 91% of audit committee members say financial statement audits identify opportunities to improve business performance.
- Almost half (46%) of executives and even more audit committee members (62%) say it’s at least somewhat likely that they would have missed important insights if the audit had not occurred.
- Companies that regularly capitalize on information received from the audit are more likely to have achieved growth over the past three to five years that survey respondents consider “good” or “great.”
“Obviously quality is the foundation here. We’ve always got to do a good, quality audit to start with,” said Adam Weissenberg, CPA, the national managing audit partner-Clients & Industries for Deloitte & Touche LLP.
“If we’re also providing insights and using that as a way to help the company know about some things they didn’t know about, that should be a valuable piece of the audit, and our client would value that.”
Through audits, companies may learn new information about their industry and market, discover shortcomings in processes and policies, and identify inefficiencies and risks. Increased use of data analytics is helping auditors
look at large pools of data in a variety of areas to find information that could be helpful to clients.
Whether it’s journal entry testing, analyzing contents of many leases across a company, or gleaning information from multiple contracts, data analytics is giving auditors the ability to find anomalies and discover inefficiencies that might have remained hidden in the past. These insights can provide important information for audit clients to act on.
Nonetheless, financial statement audits often represent a missed opportunity for companies. More than one out of every three companies (35%) rarely or never use the information received from their financial statement audits to improve their business, according to the Deloitte survey. About half of executives (45%) and audit committee members (48%) whose companies don’t always use information from their audits do not have processes in place to make use of the insights that can be taken from an audit.
Weissenberg suggested that auditors, management, and audit committees can use the following tactics to make sure the client derives maximum value from the audit: Communicate. Management, audit committees, and auditors need to make sure they communicate frequently to make sure the company is aware of and taking advantage of the insights that auditors discover. By following up and checking in with management and the audit committee, auditors can make sure that their insights have been understood.
Train auditors on judgment and communication. ‘We have to continue to work on [developing] the skills in our teams so that they can deliver on this, they have the ability to communicate effectively, they have the ability to
take all these analytics and innovation that we’ve done and discern from that what kind of information
is important to share with the audit committees,” Weissenberg said.
The survey offers good news for those who continuously strive to make the quality of audits as high as possible, as 83% of executives and 83% of audit committee members rated the reliability of information provided during an audit as good, very good, or excellent.
“There’s an inherent trust that the auditors are doing their job,” Weissenberg said, “and that the auditors are doing a good, quality audit, and that audit committees would look at us as an independent source in doing what we’re supposed to do.”
−Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com (mailto:Kenneth.Tysiac@aicpa-cima.com)) is a JofA editorial director
© 2017 Association of International Certified Professional Accountants. All rights reserved.
Included below is a summary of applicable Federal and State payroll tax rates and rules for your reference.
REPORT OF NEW EMPLOYEES (DE 34)
You must report all newly hired or rehired employees within 20 days of the start-of-work date. If an employee returns to work after a layoff or leave of absence and is required to complete a new IRS Employee’s Withholding Allowance Certificate (Form W-4), you must report the employee as a new hire. If the returning employee had been separated or removed from payroll records for at least 60 consecutive days, then you need to report the employee as a rehire.
All employers are required by law to report all newly hired or rehired employees to the New Employee Registry (NER) within 20 days of their start-of-work date, which is the first day services were performed for wages, NEWLY HIRED employees are those individuals who have not previously been included on your payroll. REHIRED employees are those individuals who were previously included on your payroll, left your employment, and were rehired after a separation of at least 60 consecutive days. The NER assists California’s Department of Child Support Services and Department of Justice in locating parents to collect delinquent child support payments. Employers must also report the actual start-of-work date (not the date hired) for each newly hired or rehired employee so that the NER data can be cross-matched to the Unemployment Insurance (UI) benefit payment file. This will result in the early detection and prevention of UI benefit overpayments.
The following options are available to report new or rehired employees:
- File online at https://eddservices.edd.ca.gov. It’s fast, easy, and secure.
- Obtain DE 34 forms from the EDD website at www.edd.ca.gov/forms.
REPORT OF INDEPENDENT CONTRACTORS (DE542)
Independent contractor information must be reported to the EDD within 20 days of either making payments totaling $600 or more, or entering into a contract for $600 or more with an independent contractor in any calendar year, whichever occurs first. This is in addition to your requirement to report the total annual payments to the Internal Revenue Service on a Form 1099-MISC after the close of the calendar year.
Any business or government entity that is required to file a Federal Form 1099-MISC for personal services performed must also report specific information to the EDD regarding any independent contractor providing services to you or your business. The Independent Contractor Reporting (ICR) information assists California’s Department of Child Support Services and Department of Justice in locating parents for the purpose of collecting delinquent child support. An independent contractor is an individual who is not a common law or statutory employee of a business/government entity for California purposes and who receives compensation for or executes a contract for services performed for a business/government entity, either in or outside of California.
Filing Options for Reporting Independent Contractors:
- File online at https://eddservices.edd.ca.gov.
- Obtain DE 542 forms from the EDD website at www.edd.ca.gov/forms.
Call the Employment Development Department at (888) 745-3886 with any questions you may have.
PAYROLL TAX RATES & RULES
(1) & (2) See Deposit Requirements below
** Amount is based on 2016 subject wages
*** See Payroll Update below
SOCIAL SECURITY NUMBER VERIFICATION
The Social Security Administration (SSA) offers employers and authorized agents a service for verifying employees’ Social Security Number (SSN). For information on how to access the SSA’s SSN verification service, access the SSA’s website at www.ssa.gov/employer/ssnv.htm or contact your local SSA office.
Monthly Rule – Deposit taxes due on a calendar-month payroll by the 15th day of the following month.
Semi-weekly Rule – For payroll paid on Wednesday, Thursday or Friday, deposit taxes by the following Wednesday. For payroll paid on Saturday, Sunday, Monday or Tuesday, deposit taxes by the following Friday. For additional information, refer to the 2017 Circular E.
Generally, whatever method you follow to make federal deposits will be the same method you use for state purposes. Employers who deposit on a monthly basis for federal purposes and who meet the State PIT threshold of $350 must remit both PIT and SDI withholdings on the payroll tax deposit coupon (DE-88) by the 15th of the following month. State deposits are generally due at the same time as federal deposits. The PIT threshold for those employers who deposit quarterly is $350. For additional information refer to the rules contained in the 2017 California Employer’s Guide.
In August 2015, California passed Assembly Bill 1245 requiring employers to electronically submit employment tax returns, wage reports, and payroll tax deposits to the Employment Development Department (EDD). This e-file and e-pay mandate will be phased in as follows:
- Effective January 1, 2017, employers with 10 or more employees are required to electronically file and pay.
- Effective January 1, 2018, all employers are required to electronically file and pay. Any employer required under existing law to electronically submit wage reports and/orelectronic funds transfer to the EDD will remain subject to those requirements. Feel free to call our firm if you have any questions.
By Ken Tysiac
Journal of Accountancy
A Proposal FASB expects to issue for public comment in mid-April is aimed at enhancing the usefulness of the financial statements of not-for-profit organizations.
FASB voted 5-2 Wednesday to issue a proposed Accounting Standards Update, which would oppose changes to:
- The current net asset classification scheme.
- The required information about an organization’s liquidity, financial performance, and
The board will propose reducing the number of new asset classes presented from three to two. The new classification would convey net assets with donor-imposed restrictions and without donor-imposed restrictions.
Under the proposal, all not-for-profits also would be required to report expenses both by their nature and by function.
“I think the benefits justify the costs,” FASB member Tom Linsmeier said during the meeting. “I think that we’re providing an opportunity for the not-for-profit community to tell their story far better.”
FASB Chairman Russell Golden, who cast one of the dissenting votes, said some aspects of the proposal will reduce costs, promote simplification, and provide additional benefits to the not-for-profit community. But he is concerned that the project may increase complexity in the system overall because some of the tentative decisions address conditions only for not-for- profits on issues that also apply outside the not-for-profit sector.
“We should have thought holistically about the cash flow statement, holistically about the operating performance measure, and holistically about the classifications within the cash flow statement,” Golden said.
─ Ken Tysiac (mailto:email@example.com) is a JofA editorial director.
© 2015 American Institute of CPAs – All Rights Reserved