GODFREY

HODGSON
HOLMES
TARCA

CHAPTER 14
EMERGING ISSUES IN
ACCOUNTING AND AUDITING

XBRL • XBRL = Extensible business reporting language • Allows financial information to be presented in an interactive way that in turn allows individual items of data to be extracted by software to produce reports custom designed by individual users – SEC (2008) – 500 of largest US companies • 2009 financial reports 2 .

XBRL • XBRL will loosen the control managers currently have on data aggregation decisions and place their performance under greater scrutiny 3 .

The effects of corporate collapses and Sarbanes-Oxley Act (2002) • High profile collapses in early 2000s changed the image of accounting and auditing and its regulatory environment • Criticism of auditor independence and corporate governance • SOX – peer reviews replaced by PCAOB inspections – restrictions on provision of non-audit services by audit firms to their audit clients 4 .

Issues surrounding the application of fair value accounting during the global financial crisis • Some believe the practice of fair valuing assets was contributing factor – it requires the write-down in the value of some assets when markets are turbulent • marking financial assets to market • Considerable dispute about this – SEC investigation (2008) • recommendations offered for improving fair value accounting 5 .

Is the criticism leveled at ‘fair value measurement’ fair? 6 .

rather than using markets 7 . 2008) changed rules so that losses from changes in market values of financial assets could be reclassified under certain circumstances avoiding charging mark- to-market losses to the income statement • FASB (2009) introduced a ruling to allow banks to use their own judgement in determining the fair value of assets.Reactions by standard setters • IASB (October.

Auditors and the global financial crisis • The GFC could lead to regulatory action affecting auditors – relatively little attention paid to the auditor’s role in the crisis – the accounting profession and regulators have proactively issued guidance – auditors of banks later suffering financial difficulties can expect to come under scrutiny 8 .

IASB and FASB convergence project • 2002 and 2006 convergence agreements • SEC issued (2008) a roadmap for the use of IFRS by US companies by 2014 – markets becoming increasingly global – new investment opportunities to US investors – would make firms from different countries easier to compare – progress toward 7 milestones to be assessed in 2011 9 .

Issues in IFRS-US GAAP convergence • It is not certain that the US will adopt IFRS • Some argue that competition between standard setters is desirable 10 .

International auditing standards • Auditing standards are also being internationalised – have been redrafted – growing international acceptance • A move to IFRS would require US auditing standards to change from assessing ‘conformity with rules’ to assessing ‘true and fair’ 11 .

International auditing standards • Both the auditing and accounting standards boards must deal with issues relating to their independence and governance before both sets of standards are truly global 12 .

Sustainability accounting. reporting and assurance • Companies are issuing sustainability reports • Sustainability accounting is a subset of social accounting • Sustainability can be regarded as meeting the needs of the present without compromising the ability of future generations to meet their own needs – environmental protection – justice between peoples and generations 13 .

Recent developments in sustainability reporting • Global reporting initiative (2006) • Accounting for carbon emissions • Sustainability reports are increasingly being either audited or reviewed by independent auditors – companies with the most to gain from increasing the credibility of their reports are more likely to seek assurance – little authoritative guidance 14 .

Trends in sustainability reporting • Some companies are now seeking assurance for their sustainability reports 15 .

Other non-financial accounting and reporting issues • Water accounting applies accrual accounting concepts to water resources • Greenhouse gas emission accounting • Both attempt to provide data on scarce resources other than those traditionally captured by financial accounting systems 16 .

Summary • One of the major influences on accounting and auditing practice and research is the growing internationalisation of accounting and auditing standards • There have been recent developments in sustainability reporting and assurance • Water accounting and greenhouse gas emission accounting are new developments 17 .

Key terms and concepts • XBRL • Sarbanes-Oxley Act 2002 • Fair value accounting and the GFC • Auditors and the GFC • Convergence project • Sustainability accounting and assurance • Water accounting • Greenhouse gas emission accounting 18 .

19 .