Thomson Reuters offers new audit management tool

Thomson Reuters has added an Audit Management solution to its Connected Risk platform to help firms better assess risks and increase the efficiency of their audit process.

Thomson Reuters launched its Connected Risk platform in the first quarter of 2017 following its acquisition of Empowered Systems, whose proprietary technology underpins the offering. Connected Risk is designed to help customers tailor solutions to meet specific risk-use cases.

The new Audit Management addition is designed to facilitate the role of an audit advisor to their business clients by providing information to support strategic decision-making.

Auditors can use the tool to adjust audit plans in cycle to reflect changes in risk profiles, and where applicable, assessments can be informed by the broader business risk through use of the underlying Connected Risk platform’s data mapping and aggregation capabilities, according to Thomson Reuters. Audit professionals can also execute audits underpinned by electronic work-papers and subsequent audit findings management, which is all tracked and reported through the integrated dashboards and reporting engine and/or integrated into existing business intelligence tools.

“There is no denying that both the financial services and corporate sectors continue to experience unprecedented volumes of regulatory change and complexity,” said Gareth Evans, managing director, enterprise risk management at Thomson Reuters, in a statement. “The amount of data our customers must understand shows no sign of abatement. What they need more than ever are ways to better make sense of what matters.”

He added that the Audit Management tool will allow auditor customers to apply “the deep expertise that Thomson Reuters is known for in managing and interpreting unstructured data.”

Source: Accounting Today

Internal control weaknesses correlate with financial fraud

Former Sen. Paul Sarbanes (D-Md), co-author of the Sarbanes-Oxley Act.

Bloomberg

The audits of companies’ internal controls mandated by the Sarbanes-Oxley Act are good predictors of financial fraud, according to a new study.

The study, by professors Matthew Ege of Texas A&M University and Dain C. Donelson and John M. McInnis of the University of Texas at Austin, found the incidence of fraud disclosures at companies previously found by auditors to have material weaknesses in their internal controls is approximately 80 to 90 percent greater than companies on average, depending on how it was measured. Of the 127 fraud cases identified by the study, 36 of them, or nearly 30 percent, occurred after auditor reports of material weakness in internal controls. The study appears in the August/October issue of Auditing: A Journal of Practice & Theory, a quarterly published by the American Accounting Association.

The researchers collected 14,000 internal-control opinions from auditors for large and midsized corporations, examining the relationship between reports of material weaknesses and reports of corporate fraud within the following three years.

“Although material-weakness reports mostly reflect accounting errors and portend revelations of fraud only infrequently, the fact that they precede almost 30 percent of the instances where fraud does, in fact, come to light should lead investors, regulators and legislators to take notice,” Ege said in a statement.

The study provides ammunition for defenders of the Sarbanes-Oxley Act of 2002, particularly Section 404(b), which mandates outside audits of public companies’ internal controls. The legislation was passed in the aftermath of the wave of accounting scandals of the early 2000s at companies such as Enron and WorldCom. However, Congress later relaxed the requirement for so-called “emerging growth companies” in the JOBS Act of 2012, in an effort to spur the development of startup businesses with less than $1 billion in annual revenues that want to go public. The Financial Choice Act that the House passed in June would lower the threshold further to $50 million.

“SOX Section 404(b) provides a potential benefit of an early warning system for future fraud revelation,” said the study. “Given the criticism of SOX and discussion in favor of its repeal or curtailment, this benefit is an important consideration alongside the costs of internal control reporting.”

Source: Accounting Today

5 Ways to avoid Audit

While audits are rare, most Americans would probably like to avoid them altogether. The percentage of people who actually are audited is extremely small, according to the Internal Revenue Service, but the number has risen slowly since 2008. If the IRS does decide to audit you, there is little you may do to stop it. You may, however, reduce the odds that you will be singled out for that extra attention in the first place.

1. Check your figures

One of the most common red flags for auditors – erroneous data entry – is also one of the most preventable. It seems simple enough to follow the advice to “double-check your return,” but surprisingly, people often are too careless regarding their taxes. Correctly reporting dependents and exemptions, as well as ensuring that the numbers match, is important because the IRS's automated system will easily detect discrepancies. And they don’t know if that is a mistake or purposeful.

2. Honesty is the best policy

Perhaps it’s common sense, but being 100 percent truthful on your tax return is an absolute must to reduce the chances of an audit. Realistically reporting income, deductions, credits and other figures can help keep the tax man at bay. Not reporting all your income is a surefire way to attract attention.

3. Go vanilla

The largest pool of filers – which consists of individuals or joint filers who earned less than $200,000 but more than the lowest earners – tends to avoid overt scrutiny. Taxpayers who make more than $1 million a year and those in very low income brackets are most likely to be audited.

4. Realistic deductions

Unusual or unrealistic itemized deductions, either for individuals or small business owners, may raise a red flag for auditors.

For a sole proprietor who files Schedule C, which details profits and business expenses, reporting losses for three years or more could encourage an auditor to request proof that the filer is actually in business.

5. E-filing helps

The Internal Revenue Service maintains that filing returns electronically can “dramatically reduce errors,” lowering the odds of an audit. The error rate for a paper return, the IRS reported, is 21 percent. The rate for returns filed electronically is 0.5 percent.

Courtesy of TurboTax

For more information contact Neikirk, Mahoney and Smith at 502-896-2999

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