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Bramwell’s Lunch Beat: Use of Big Data Presents Many Challenges for Auditors

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Apr 22nd 2015
Staff Writer and Editor AccountingWEB
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Restatements affect bottom line less often
Maxwell Murphy of the Wall Street Journal’s CFO Journal wrote that the proportion of corporate financial restatements that had no impact on the bottom line was 59 percent in 2014, according to data from research firm Audit Analytics. That brought the increase over the past four years to 22 percentage points, which suggests that the Sarbanes-Oxley corporate-governance law has succeeded in bolstering companies’ internal controls over financial reporting. Among companies listed on major stock exchanges, there were 460 restatements last year that had no effect on income statements, up slightly from a year earlier. “What you’re seeing here is the benefits” of Section 404 of the Sarbanes-Oxley Act of 2002, said Don Whalen, director of research for Audit Analytics. “Everything gets better after [Section] 404.”

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EY sees barriers to use of big data for audits
“Big data” and analytics promise to transform auditing, but there are still a number of barriers to successfully integrating them into the audit, according to the latest issue of Ernst & Young’s (EY) Reporting magazine, wrote Matthew Heller of CFO. The ultimate goal, EY says, is to have intelligent audit applications that function within companies’ data centers and stream the results of proprietary analytics to audit teams. With the technology to accomplish that vision “still in its infancy,” the interim solution is to integrate big data and analytics into the auditing process. EY identifies data capture as one barrier to successful integration. Other concerns are that auditors encounter hundreds of different accounting systems and multiple systems within the same company, all containing different sets and types of data, and that embracing big data will increase the complexity of data extraction and the volumes of data to be processed.

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Princeton loses appeal in bid to dismiss tax-exemption suit
Princeton University must face a lawsuit challenging its New Jersey property tax exemption, a state appeals court ruled in clearing the way for a trial that could affect the tax status of all nonprofit colleges, wrote David Voreacos of Bloomberg. Four residents of the town of Princeton sued to revoke the school’s tax exemption, in part because it shares royalties with faculty, mostly from a patent that Eli Lilly & Co. turned into the cancer drug Alimta. The university appealed Tax Court Judge Vito Bianco’s rejection of its claim that the case should turn on whether making a profit is its “dominant motive.” Princeton University said it will now prepare for trial and won’t appeal further. The April 17 ruling by the state appellate division rejected the school’s request that the court hear an appeal of Bianco’s ruling before a trial takes place. The school said Bianco’s ruling may encourage many other taxpayer groups to sue nonprofits.

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Seeking Obamacare alternative, US Republicans eye tax credits
If the US Supreme Court blows up the tax subsidies at the heart of Obamacare in June, Republicans hope to deliver on their promise to offer an alternative healthcare plan, wrote Susan Cornwell of Reuters. Two front-running Republican options at an early stage in Congress include a refundable tax credit that experts say is virtually the same thing as the Obamacare tax subsidy being challenged before the Supreme Court. Republicans deny that their ideas are tantamount to “Obamacare Lite” but acknowledge they will need bipartisan support for their plans to stand any chance of avoiding a veto from President Obama. “It's not going to be like Obamacare, in my opinion,” said Senate Finance Committee Chairman Orrin Hatch, whose plan includes a refundable tax credit for low-and middle-income Americans. One difference is that Republicans would allow the tax credits to be used to buy insurance in the private market, where as under Obamacare, the credits can be obtained only through the state or federal online exchanges.

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GOP senator to IRS: Clean up your data security
A senior Senate Republican said on Tuesday that he wanted answers from the IRS on what he sees as lax protection of taxpayer data, wrote Bernie Becker of The Hill. Citing reports from the US Government Accountability Office (GAO) and the Treasury Inspector General for Tax Administration (TIGTA), Sen. Chuck Grassley (R-IA) said that when the IRS “fails to adequately manage its computer systems, it creates opportunities for data to be lost, corrupted, or stolen.” The GAO said last month that it found 69 trouble spots in IRS systems, Grassley said in a letter to IRS Commissioner John Koskinen. Those soft spots, Grassley said, had been identified anywhere from one to four years ago. TIGTA has added that data security is the IRS’s top management problem this year. “Protecting taxpayer’s information and ensuring efficient and appropriate administration of the tax system are of paramount concern,” Grassley wrote.

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