Short description of Tone at the Top
If you would like to refer your clients to a short explanation of tone at the top, you can find a great post at Nonprofit/Government GPS: Tone at the Top, written by Sharlynn Garza.
Audits
Quick description of Longtop, an auditing mess in China
The Economist has a summary of the situation Deloitte is tangled in regarding their audit of Longtop, a Chinese company that had some problems.
Article is here: Chinese Stall
Condensed thumbnail version in 75 words:
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Quick description of Longtop, an auditing mess in ChinaRead More »
Filling up a bucket – word picture for levels of assurance in audit, review, and compilation
In a webcast on August 31, 2011, Mr. Michael Glynn, CPA, of the AICPA staff, gave a wonderful word picture of the levels of assurance in a review and audit. Here’s his idea: Filling up a bucket with procedures produces different levels of assurance. I would like to expand Mr. Glynn’s description and provide an illustration.
- In an audit, the accountant
providesobtain reasonable assurance that there are no material errors in the financial statements. - In a review, the accountant
providesobtain limited assurance that there are no material errors in the financial statements. - In a compilation,the accountant does not
provideobtain any assurance that there are no material errors in the financial statements.
Notice the similarity and difference? The overlap between these definitions is how much assurance the accountant provides obtains that there are no material errors in the financial statements.
The differences? …
A skeptical reason mandatory auditor rotation won’t improve audits
Dr. Tom Selling offers hypothetical resolutions to how mandatory auditor rotation might play out when a bank is sitting on a lot of bonds that are only worth half of face value.
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A skeptical reason mandatory auditor rotation won’t improve auditsRead More »
Children in school as illustration for management’s responsibility over financial statements – a word picture for SSARS 19
How can management be response for financial statements and internal control for preparation of the financials when the accountant prepares them? That is what the second paragraph in the compilation and review report say. See thumbnail picture of the reports here. See sample reports here and here.
In a webcast on August 31, 2011, Mr. Michael Glynn, CPA, from the AICPA, gave a fantastic word picture for how management can be responsible for the report and internal control.
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Easy way to research mobility requirements
The AICPA and NASBA have set up a website that allows CPAs to quickly look up the practice privilege requirements in another state. The site, CPAmobility asks three questions:
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Other than being almost impossible to implement, audit firm rotation is a great idea
Jim Peterson points out several rather severe problems with mandatory firm rotation.
Mandatory Auditor Rotation – The PCAOB Sails Off the Charts into the waters where
the legend written on the old flat-earth maps – that beyond the horizons of ignorance, (says) “there be dragons.”
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Other than being almost impossible to implement, audit firm rotation is a great ideaRead More »
PCAOB opens discussion on mandatory audit firm rotation
PCAOB issued a concept release to open discussion of mandatory audit firm rotation.
The Journal of Accountancy has some background at PCAOB Opens Discussion on Audit Firm Rotation.
The concept release is here.
P.S. I try not to release more than 1 post per day, but have a bunch of drafts I want to get posted, so here is #2 for the day.
PCAOB will meet to discuss a concept statement about asking for comments on maybe requiring mandatory firm rotation.
Still quite iffy. PCAOB is thinking about maybe asking for reaction to the idea. A long way from implementation, but it is the next step on that path.
John Hufnagle has a few more words on the topic at Audit Firm Rotation – The Train Is Starting Its Engine. Gotta’ love the title of his post!
I think it is a bad idea. …
Thinking of doing a little “file cleanup” before an inspection? Think about the consequences too.
Maybe not such a great idea after all.
An E&Y partner, senior manager, and manager were sanctioned by the PCAOB for some file clean up in advance of an inspection. They backdated four difference pieces of new documentation. They did not identify the documents were added after the documentation completion date. All three are prohibited for several years from working for a firm registered with PCAOB. The partner was fined $50,000.
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Minor change in number of going concern opinions for public companies
The number of going concern opinions for public companies declined in 2010. Here is some good info for those of us outside the SEC world to learn what is going on beyond our field of vision.
Here is the recent trend, according to the article Going Concern Opinions Trail Off in 2010, at Compliance week, which is quoting a report from Audit Analytics:
- 2003 – 2,552
- 2007 – 3,300
- 2008 – 3,328
- 2009 – 2,994
- 2010 – 2,875
How significant is that trend? Not that big of a change.
Since the above data is for public companies, I wanted to put it into perspective. I wondered how many public companies are listed. Found one webpage that quotes a number of 17,000 from many sources. The Audit Analytics home page says there are over 20,000. Let’s go with the 20,000 estimate.
So the change from year to year is rather small in relation to 20,000 public companies:
- an increase of 28 during 2008 which seems to be a small increase for the worst year in the recession and the liquidity crisis in the fall of 2008;
- a decline of 334 in 2009 which makes sense considering the official end of the recession was in the summer of 2009; and
- a decrease of 119 in 2010.
From 2003, which is the low of the last decade, to the high of 2008 is an increase of 776, which is 3.9% of public companies. From the peak of 2008 through 2010 is a decline of 453 going concern opinions.
Last step I took in looking at the trend is to calculate the number of going concern opinions as a percent of publicly traded companies (20,000 as mentioned above and assuming no change in the number of public companies):
- 2003 – 12.8%
- 2007 – 16.5%
- 2008 – 16.6% (rate is up 3.9% from decade’s low)
- 2009 – 15.0%
- 2010 – 14.4% (rate is down 2.4% from peak)
An improvement? Yes. A major change? I don’t think so.
What’s new in this picture for me? I’m surprised how many going concern opinions there are for public companies, how small the change was from 2003 to 2008, and how small the improvement has been in the last two years.
(Hat tip: first, Going Concern and then, CPA Letter Daily)
So what’s an auditor to do if the local bank is in on a massive fraud?
So the auditor goes to the new client’s bank and gets copies of the bank statements from them. An entire year’s worth of statements. Does all the audit work. Everything looks fine. Issues their report. Everything is fine, right?
Except that in addition to the client cooking the books, the local bank made up those bank statements. Fraud came tumbling down because the auditor, yes notice the auditor tumbled to the fraud, went to the bank’s home office to get copies of the bank statements, which were drastically different from what the local branch provided.
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So what’s an auditor to do if the local bank is in on a massive fraud?Read More »
Mandatory auditor rotation for large companies – impractical, ineffective, costly, and increases concentration in Big 4 – other than it’s a great idea
Reservations are surfacing about the idea of mandatory auditor rotation, particularly for the really big companies. That is an idea being pushed by the PCAOB. See previous post.
Jim Peterson, at Re:Balance, has a long list of concerns with the idea, as discussed in his post Mandatory Auditor Rotation – – Further Thoughts on PCAOB Chairman Doty’s Bad Idea.
My summary of a few of his ideas:
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Another intro to the clarified SAS literature
The California Society of CPAs has a great introduction to the new, rewritten and clarified SAS literature in their July 2011 issue.
The article Full Tank of GAAS by Andrew M. Mintzer, CPA provides a great introduction to the overhaul of the entire body of SASs.
The article also has a great summary of the major changes in the auditor’s report.
It is quite short and well worth your read if nothing other than a general heads-up on the revised report format.
All of the ethics rules are being reorganized and restructured – here’s an intro to the project
All of the ethics rules are being restructured and redrafted. They will be put together around a conceptual framework. Although the changes are in the distant future, efforts to rewrite the code are underway right now. It would be wise for us to start paying attention.
A good place to start is an article in the June 2011 Journal of Accountancy.
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