Annual Survey Reveals Audit Deficiencies Remain High But Declined For Second Year: Financial Risk Led By High Pace Of M&A Activity

ATLANTA, Oct. 26, 2017 /PRNewswire/ -- Mark Zyla, managing director of Atlanta-based valuation and litigation consultancy firm, Acuitas, Inc., released the firm's "2017 Survey of Fair Value Audit Deficiencies," its sixth annual analysis of recent Public Company Accounting Oversight Board (PCAOB) inspections. Acuitas' survey is intended to assist financial statement preparers, auditors and valuation specialists in understanding the root causes of fair value measurement (FVM) and impairment audit deficiencies. There are several key findings and trends noted by the analysis of the 2009 to 2016 inspection reports and from PCAOB Inspection Briefs:

  • The percentage of audit deficiencies has dropped since its dramatic peak in 2013 – but remains quite high at 31.6 percent of audits and other engagements examined.
  • FVM audit deficiencies are increasingly attributable to a surge in business combination engagements. Fair value deficiencies cited related to business combinations increased to 68 percent in 2015, up from 56 percent in 2014. The PCAOB considers the robust pace of merger and acquisition activity to be an economic risk escalating the prospect of material misstatements.
  • Based on our analysis, failures to assess audit risks as well as test internal controls and assumptions underlying prospective financial information are the root causes of most FVM and impairment audit deficiencies. The PCAOB links improvements to factors such as heightened responsiveness from management and the increased use of quality control aids.
  • The June 2017 release of proposed auditing standard Auditing Accounting Estimates, Including Fair Value Measurements reinforces the PCAOB's commitment to seeing improvements in these areas.

"It's apparent that the number of audit deficiencies remains high, owing to a surge in deal-making activity," Zyla said. "But we are seeing industry and accounting firm leaders committing to more quality control measures and ensuring due professional care, hence the decline."

The complete survey and data is available from Mark Zyla, a managing director of Acuitas, Inc., who can be reached at mzyla@acuitasinc.com. You are also welcome to quote Zyla using any of the above statements.

About Acuitas Inc.'s Survey of Fair Value Audit Deficiencies
The information contained in the Survey of Fair Value Audit Deficiencies is used to benefit public entities and their auditors and, by extension, private entities and their auditors by helping them understand the underlying causes of FVM and impairment audit deficiencies and failures according to the PCAOB.

About Mark Zyla
Zyla is a managing director of Acuitas, Inc., an Atlanta-based valuation and litigation consultancy firm. Zyla is regarded as one of the country's leading experts on fair value, having presented for the AICPA's key annual programs on fair value, as well as authored the leading book on the subject, "Fair Value Measurements: Practical Guidance and Implementation." Zyla is chair of the International Valuation Standards Council's Standards Review Board and former practice leader for PricewaterhouseCoopers's Corporate Finance Consulting Group for the southeastern United States. His bio and work can be found online at www.acuitasinc.com/resume_mzyla.html.

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SOURCE Acuitas, Inc.