Audits

PCAOB hints at mandatory audit firm rotation – Are they dropping a hint to the audit profession?

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The chairman of the PCAOB, James Doty, gave a speech this week that got some attention. He pointed out that the PCAOB had found “hundreds” of audit failures amongst the 2,800 reviews the agency has conducted. Not a particularly encouraging passing rate for the big firms that work on publicly traded clients (or the mighty bold smaller ones that want to run in that world).

He suggested that auditors aren’t taking independence quite seriously enough. Mandatory firm rotation is one of several ideas he is mulling in public.

What kind of problem is the PCAOB seeing that generates these ideas?

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All of the SAS are being rewritten – here’s a good introduction

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The entire body of auditing standards are being rewritten. All of the rewrite will go into effect with our December 31, 2012 audits.  This entire project is referred to as The Clarity Project, which is producing what are called clarified standards.

There will be a lot of changes, both big and small. You would do well to start reading up on the issues. We have until we start field work early in 2013 to get up to speed. By the way, the audit report will have substantial revisions.

The June 2011 issue of the Journal of Accountancy has a great introduction:

Clarified Auditing Standards: The Quiet Revolution

I heartily recommend you read the article. Well worth your time. You can click on the Audits category in the right column of this blog for other discussions of the clarified standards.

Overall data on CPA firms by size including revenue and number of professionals

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Stat data from the AICPA lists information for CPA firms sorted by size: big 4, top 100, large (21-75), medium (11-20), small (2-10), and sole practitioners. Table includes number of firms in each category, total revenue for that sector, number of professional staff in each category. This is 2009 data.

We’re All Small Firms Now, from CPATrendlines; data from AICPA.

A few tidbits of interest to me:

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Clarified Statements on Auditing Standards available from the AICPA

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The final clarified SASs are available at the AICPA website here.

They are in 36 files.  Downloaded them for ease of reading and checking on things for some projects I’m working on.  The total size of the PDF files is 6.3 MB.

Lots of material there. Might be good to start reading them soon since they are expected to go into effect for audits of 12-31-12 financial statements (precise transition is financial statement periods ending after 12-15-12).

Update:  There are 5 clarified/rewritten SASs in draft form, which can be found here. Also one omnibus draft that makes several revisions to other clarified SASs.

A glimpse of IFRS and the really big players in the accounting world from the world of really small players

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Today I’ll provide a brief glance at the huge end of the accounting world. I’m intentionally a one-person firm providing attestation services. My market is small nonprofits. I perceive most of the visitors to my blogs are from small CPA firms and small NPOs. As a result, all the readers here and I have a view of the small end of the accounting world.

Today’s questions: will US GAAP ever converge with IFRS, and what do financial statements look like for a really big company.

Will convergence with IFRS ever happened?

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What is the framework for audits under the new SASs that are being developed?

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The ASB has a new SAS that provides the conceptual structure for the audit literature.  If any of the (painfully long) list of redrafted and clarified SASs are something that every CPA should read cover-to-cover, this is the one.

The CPA Accounting and Auditing Update blogging team has a superb recap of the key ideas in that SAS.

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So an auditor couldn’t pick up any red flags to a corruption case. Why is that a problem?

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Getting back to the original question of whether a CPA could identify in the alleged incident that there was some kind of a fraudulent transaction during an audit (assuming it actually happened) – – I am thinking the answer is it would not be possible to find the fraud, even if you were looking for it.

So, what’s the problem?

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How could an auditor pick up any red flags to this corruption case? Let’s change the circumstances

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Previous posts have given the background about a corruption indictment and my questions of what could have possibly been seen by a CPA auditor in this alleged situation.

Now let’s change the scenario.  If it is your client getting shaken down the implications on the audit aren’t that severe.  Just change the alleged situation to something different where the local business approached the mayor and asked him to intervene.  By changing that part of the story, it will convert this from an allegation of the mayor shaking down a business to a hypothetical of your client successfully bribing a public official.  That would make it an issue with a very material impact on your client and therefore a huge issue for you and your audit report.

Having changed those circumstances to where your client illegally paid off a government official, how could you possibly detect that bribery payment?

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How could an auditor pick up any red flags to this corruption case? What could have been seen?

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Previous post gave the background of a corruption case in a city near to where I live.  I’m using this actual situation as a short case study for CPAs.

Now, if you are the auditor of the city how could you possibly come across any red flags that this alleged bribery had taken place?  I don’t see how any auditor would be able to see anything out of line.

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How could an auditor pick up any red flags to this corruption case? Background

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When I see the details of a fraud that has worked into the public eye, I sometimes look a little deeper for my learning.  I also wonder what could have been seen by an auditor.  What catches my interest today is the criminal indictment of the mayor of Upland, California, which is the city next door to where I live.

Today’s post will provide some background.  Discussion to follow later.

There are two particular businesses in Upland that had their licenses revoked by the city.  The FBI alleges the mayor had his buddies approach each of the businesses and ask for money.  In return, the FBI says the mayor offered to intervene with different city agencies to get the licenses back.  In 2007 and 2009, the FBI claims the two businesses paid $45,000 to the mayor’s helper.  Last week the mayor and his helper were indicted.

So here’s the question: is there anything in this corruption case that an auditor could have seen that would have hinted of the existence of the scheme?

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What is an audit? General framework defined at overall level by a new SAS

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One of the new SAS that will go into effect at the end of 2012 provides an explanation of the overall objective of an audit and how to conduct an audit at an overall conceptual level.  This provides the framework of an audit under GAAS.

You would do well to read this SAS cover to cover as you start to get up to speed on the complete overhaul of the entire body of GAAS.  Here are a few highlights.

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