Comments from recent continuing education classes worth repeating: “get in or get out”

If you are an auditor and that is a diagram of new audit rules, then you need to completely understand the graph. Image courtesy of Adobe Stock.

Here are some fun or interesting or useful tidbits from the October 2018 A&A and the June 2019 Not-for-profit conferences presented by California Society of CPAs.

Previous posts had comments on accounting and auditing as well as peer review.

“Get in or get out”

The second speaker who discussed peer review in previous post also said that if you are doing A&A work you need to “get in or get out.”

Let me translate that…

“Get in or get out” means you need to have enough engagements to be proficient, get serious about CPE, get serious about your professional reading, and get serious enough about paying attention to the massive changes in accounting, audit rules, and peer review that you really, reeeeeally know what you are doing.

Another speaker said that federal regulators (that means PCAOB for those who avoid that world like the plague) are fed up with the poor quality of broker/dealer audits. They have lost their patience, is how this speaker described the situation.

That means if you perform broker/dealer audits, you need to get very serious about complying with the specific rules for that world. Doing just one or two or three of those engagements isn’t enough to be proficient. “Get in or get out” applies here as well.

The same “get in or get out” concept applies if you are providing yellow book audits. You need to do more than one or two if you want to be proficient. The overall failure rate for yellow book audits is not very good. The failure rate for firms or individual partners who only perform a few is, um, bad.

If you don’t understand the “or get out” risk, please ponder that the federal regulator who looks at yout broker/dealer audit can drop a big hammer on you if you miss the boat. I perceive that the federal regulator who considers your pension audit to be deficient won’t hesitate to file a formal complaint with your state board.

If you are doing broker/dealer or yellow book audits, you need to either get very serious or drop those clients. Same with audits. Get serious.

I would suggest the same applies for firms only providing reviews & comps. Look at the disciplinary actions by the California Board of Accountancy and you will see practitioners getting their license suspended (with a stay of the suspension with three year probation) for failures in review engagements and even for compilations.

Get serious about these specialized areas or refer the work out to a colleague.

Next post: ideas for nonprofits

2 thoughts on “Comments from recent continuing education classes worth repeating: “get in or get out””

  1. Agreed, Jim. The days of using audits as filler work in the summer are probably gone (unless you have strong systems and supervision, and low risk clients). Whether clients are really served by a drop in the number of firms that do audits/comps/reviews is up for debate, but I think it’s coming.

    1. Hi Jim:

      The thought of doing audits just as a summer filler should be a frightening idea for the firm thinking of doing so. The risks from that perspective are sky-high. I do hope that concept is almost extinct.

      Oh, about that “its a low risk client” concept. If your client list contains public companies registered with the SEC and your workpapers get checked out by PCAOB every three years, those few charities in your client list may be extremely low risk. In that case, it would make sense to take on low realization clients to keep busy in the summer. If you can deal with PCAOB rules, providing an exquisitely high quality audit of a simple charity would be a piece of cake.

      On the other hand, I do not sense the California board would hesitate for even half a second to apply sanctions for a low quality audit of charity financials or a privately held services provider just because they are ‘low risk.’ In fact, the California board *does* apply sanctions for poor quality reviews and compilations. With one’s license on the line, I cannot quite grasp how the old low-risk-fill-up-the-summer mindset can possibly survive.

      I perceive that some firms, especially smaller ones, are pulling out of attestation work. I have no idea how widespread that is, but stories I hear floating around indicate it is happening.

      Thanks again for taking the time to read and comment.


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