Tag Archives: auditor

What is the PCAOB auditor process for public companies?

What is the PCAOB auditor process for public companies?

I’ve worked with public companies since 1998 in some form or fashion – either being the investor who provides the equity to “go public”, being the private company who goes through the process of going public, or being the consultant who helps the private companies through the process. One of the most frustrating parts of either “going public” or being public is interacting with the PCAOB auditors. Most of the frustration comes from the process, a good process at that, but a process of completing the audit itself – it’s a process that provides the auditors with the background documents and confirmation that the financial information that they have received is correct.

The Process

For the uninitiated, the process is one that can be daunting the first time you go through it, and can make you hate even your best friend who is a PCAOB auditor, but it is a process that you must be familiar with in order to complete.  Here is the process step by step:

  1. Engagement letter
  2. Requested information list issued from auditor
  3. Information requested sent to auditor
  4. Process information, roll forwards, etc.
  5. First partner review
  6. Client responses to (5)
  7. First audit partner review
  8. Client responses to (7)
  9. Second audit partner review
  10. Client responses to (9)
  11. If 10K, auditor must receive all third party confirmations prior to filing
  12. Partners sign off
  13. EDGAR-ization / XBRL
  14. EDGAR-ized sent to auditor / client for sign off
  15. EDGAR-ized & XBRL filed

Usually after you’ve gone through all of this, it’s time for a vacation because it is a gut wrenching process by which the auditors determine if they have all the detail in order to provide their opinion that the financials are a fair representation of reality.  Remember, this is not an opinion that you have not committed fraud or some other malfeasance, but that you have provided them all of the documentation that they require.


© 2017 by Rhodes Holdings LLC and Robert C. Rhodes, all rights reserved.


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Accounting issues: Business vs. Asset and Performance Awards (LBB Newsletter)

The following is an excerpt from the LBB & Associates Ltd. March 2012 issue of LBB Briefs

Business or asset – you can’t always rely on first impressions

When it comes to deciding whether something is a business or a group of assets, you can’t always rely on your instincts. Some acquired groups don’t look like businesses in the traditional sense, but still meet the accounting definition. Some examples include certain types of outsourcing arrangements, licensing arrangements, and property acquisitions.

So, why does it matter?

For starters, the accounting for transaction costs, in-process research and development (“IPR&D”), excess purchase price (goodwill), and contingent consideration differs significantly depending on whether a business or a group of assets has been purchased. There are other implications as well, including the accounting for disposals. And, SEC rules require financial statements for acquired businesses-but not assets-that are significant.

Indicators that it’s a “business”

Here’s the official definition: a business is an integrated set of activities and assets that is capable of producing outputs and providing a return to investors. What does that mean? While this is not all encompassing, here is an overview as a point of reference:

Business versus asset: preliminary indicators

Business combination

Asset acquisition

· Key business process acquired

· No processes acquired or only administrative processes acquired

· A market participant could manage the assets to provide a return to its owners

· A market participant could not manage the assets to provide a return to its owners without combining them with other assets

· Key elements are missing but can be easily replicated

· Key elements are missing and cannot be easily replicated or obtained

· Key employees hired

· No employees hired

· Able to produce “Day 1” outputs

· Not able to create economic benefits

· Presence of goodwill

· No goodwill present

Performance awards-are you on the same page?

Compensation committees have a lot to keep track of these days: say on pay, claw-back requirements, and more. On top of all that, there’s the age-old challenge of linking executives’ pay to their performance. Here, flexibility is often desired to tailor performance goals to individuals. But when it comes to equity-based awards, performance metrics that lack sufficient objectivity can throw a wrench into the accounting treatment.

The key question: is there a “mutual understanding”?

One of the requirements for establishing a “grant date” for an equity-based performance award is that the company and employee have a mutual understanding of the key terms and conditions. Why is grant date important? It’s the date that fair value becomes “fixed” for an equity award.

A mutual understanding is typically established through a written agreement that outlines the performance metrics that the employee needs to achieve. Performance metrics take a variety of forms, including financial metrics (for example, revenue or EPS targets), operating metrics, or specific actions of the company or employee.

To establish a grant date, performance metrics need to be clear and objectively determinable. Said another way, both parties need to understand how to measure whether the metric was achieved.

When performance metrics lack objectivity

Some performance metrics are not well-defined or lack objectivity. Some examples:

  • An award tied to an employee’s performance evaluation, when the evaluation process is highly subjective
  • A metric that is defined upfront, but the compensation committee has the discretion to adjust the metric or even claw back the award-and it’s not clear when or how that discretion will be used

These types of provisions require special attention and may indicate there’s not yet a mutual understanding or a grant date. If there’s no grant date, the fair value (and expense to be recorded) is not fixed until the terms and conditions are known and the discretion is removed. This might not occur until the end of the service period. Until then, the award is typically subject to variable (that is, mark-to-market) accounting.

LBB & Associates Ltd., LLP is an AICPA, PCAOB, and CPAB registered public accounting firm with a concentration in audits of smaller reporting companies.  LBB is also active in SEC reporting consulting and acquisition due diligence efforts with smaller reporting companies.


© 2012 by LBB & Associates Ltd., used by permission by Rhodes Holdings LLC, all rights reserved.


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GBH CPA’s September 2009 Newsletter

GBH CPAs discuss the recent FASB Accounting Standards codification – hopefully making our research and references in public company filings much easier to understand:

GBH September 2009 Newsletter

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Posted by on September 17, 2009 in BLOG


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GBH announces registration with Canadian Public Accountability Board

HOUSTON, TEXAS, January 26, 2009 — GBH CPAs, PC announced today that the firm has registered with the Canadian Public Accountability Board (“CPAB”) and our firm has been added to CPAB’s list of participating audit firms on their website,  The CPAB was established in 2003 to inspect accounting firms that audit public companies in Canada. Read the rest of this entry »

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Posted by on January 29, 2009 in BLOG


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How Wholesalers/Distributors can increase cash flow & reduce taxes

If you are a wholesaler, distributor or a company that has substantial inventory, you can improve cash flow by reducing the cost of your Closing inventory value.

Taken from our friends at GLO CPA’s Newsletter for August 2008

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Posted by on August 8, 2008 in BLOG


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