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Bramwell’s Lunch Beat: The 3 Areas with the Highest Audit Inspection Deficiencies

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Mar 5th 2015
Staff Writer and Editor AccountingWEB
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US finance execs remain optimistic, envision growth, according to survey
More CPA decision-makers are optimistic about the US economy than any time in the past 10 years, according to the Business & Industry Economic Outlook Survey released on Thursday by the American Institute of CPAs, wrote Neil Amato of the Journal of Accountancy. While the momentum of executives’ optimism slowed overall in the most recent quarter, respondents remain positive about revenue and profit projections, especially when compared with first-quarter numbers in previous years. And that, in part, is emboldening companies to spend more on IT. Although IT spending projections declined slightly in the most recent outlook, it is one of four survey indicators that remained above 75. A reading above 50 indicates a generally positive outlook.

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Root cause analysis can improve audits, regulators say
Substantial improvements in audit quality are possible as a result of in-depth analyses that firms are undertaking to identify the root causes of quality issues, audit regulators said on Tuesday, wrote Ken Tysiac of the Journal of Accountancy. Internal control testing (24 percent), fair value measurement (20 percent), and revenue recognition (14 percent) were the areas that showed the highest number of audit inspection deficiencies, according to an International Forum of Independent Audit Regulators (IFIAR) survey of inspection findings performed in 2014. Lewis Ferguson, chair of the IFIAR, said root cause analysis can identify factors leading to audit issues, helping firms to correct them. “What the firms need to do is really try to understand at a very fundamental level what is preventing consistently high-quality reports,” he said. “This is really a question of consistency of execution. It’s not a question of the fact that the firms don’t know how to perform high-quality audits. They do. We see that.”

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Supreme Court closely divided on Obamacare’s future
The US Supreme Court appeared closely divided on Wednesday during heated arguments over President Obama's healthcare law, wrote Richard Wolf and Brad Heath of the USA Today. At least four justices appeared skeptical about a challenge to the law that could eliminate tax credits used by millions of Americans to pay insurance premiums. That could leave 34 states with unmanageable insurance markets featuring rising premiums and millions more residents uninsured. The principal argument advanced by the law's opponents – that four words in the 906-page statute permit the use of tax credits only in states that set up their own health insurance exchanges – appeared to please the court's most conservative members. On the other hand, all four liberals sided with the government's assertion that the entire law – designed to provide health insurance protection to “all Americans” – must be considered paramount to any literal interpretation of those four words.

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US companies are stashing $2.1 trillion overseas to avoid taxes
Eight of the biggest US technology companies added a combined $69 billion to their stockpiled offshore profits over the past year, even as some corporations in other industries felt pressure to bring cash back home, wrote Richard Rubin of Bloomberg. Microsoft Corp., Apple Inc., Google Inc., and five other tech firms now account for more than a fifth of the $2.1 trillion in profits that US companies are holding overseas, according to a Bloomberg News review of the securities filings of 304 corporations. The money pileup, reflecting companies’ incentives to park profits in low-tax countries, has drawn the attention of President Obama and US lawmakers, who see a chance to tap the funds for spending programs and to revamp the tax code. That effort is stalled in Washington, and there are few signs that tech companies will bring the profits back to the United States until Congress gives them an incentive or a mandate.

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Foreign tax surprises like Disney’s have SEC seeking sunlight
US officials are concerned that the trillions of dollars companies park overseas are doing more than just helping them skirt taxes. They’re worried the practice leaves investors in the dark, wrote Dave Michaels and Alan Katz of Bloomberg. When Walt Disney Co. investors were trying to anticipate the company’s performance in late 2012, the company told them to expect taxes to take a bigger bite out of earnings than the previous year. Then, the company reclassified some foreign income as exempt from US taxes, which added $64 million to Disney’s bottom line, representing almost 5 percent of net income for the quarter. The US Securities and Exchange Commission, which doesn’t police tax payments, is now expanding a review aimed at pushing companies to say more about big overseas tax fluctuations that it says make it difficult for investors to predict earnings.

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