Public companies preparing for a new auditing rule are unearthing knotty internal issues, the Wall Street Journal reports, prompting executives to strengthen their internal controls.
The auditor’s letter in a company’s annual report has long followed a pass/fail model and has been known to rely on boilerplate language. But under the Public Company Accounting Oversight Board rule—which began taking effect in phases this summer, for companies with an at least $700 million market value of shares held by the public—the auditor’s report, while still pass/fail, is more tailored, giving investors a window into issues that may not have been previously apparent.
About 43% of employees at large companies said audit committees identified additional types of controls requiring implementation during a practice run, according to a survey from compliance data company Intelligize, Inc., which polled 170 workers at U.S. public companies. Meanwhile, 19% of employees said their companies are still considering controls.
Large companies identified income tax, revenue recognition and lease accounting as the main “critical audit matters” during their dry run, the study found. A separate Deloitte Touche Tohmatsu study this month, based on 52 large companies, found that goodwill was the most prevalent critical matter in filings so far.
For most other public businesses, the rule takes effect the fiscal year ending on or after Dec. 15, 2020. Businesses with less than $1 billion in annual gross revenue are exempted from the rule. Read the full story.