I am pleased to announce my firm has passed its most recent peer review.
The inspection report, which has a grade of “pass”, is for the year ending May 31, 2021. The report is dated December 15, 2021 and was accepted by the state Peer Review Committee on April 7, 2022.
This is the seventh peer review my firm has completed and I am thrilled to share that every time I have received the highest rating possible.
For those not familiar with the peer review process in the accounting profession, this is a self-regulatory program that evaluates the quality of a CPA firm’s quality control over performing audits, reviews, and compilations. It looks at the processes inside a firm and also looks in detail at select engagements to ensure the audits, reviews, and compilations were performed in accordance with professional standards.
The concept is good procedures evidenced by good work on those specific engagements under inspection will result in an overall system that will routinely produce high quality results.
The double whammy of Covid pandemic and government policies in reaction to the pandemic continue to hammer the educational sector. Unsettling thing is to consider these articles only discuss the current impact and not the long-term destruction of education for all students from pre-K to grad school.
Articles for you to consider:
Columbia University settles for a refund of fees their class-action lawsuit claiming refund of fees and tuition.
Freshman enrollment in colleges and universities continued to decline in fall 2021. The anticipated return of students who skipped matriculation in fall 2020 has not happened.
As an indicator of what is likely happening in all primary and secondary schools across the country, Washington state public schools estimate enrollment for the next two years will be down another 4.5% from their February 2021 estimate.
(Discussion cross-posted from my other blog, Nonprofit Update, because it may be valuable for CPAs performing analytical review procedures during reviews or audits.)
The AICPA’s Auditing Standards Board is proposing a massive overhaul of the Quality Control Standards.
Who will this affect? All CPA firms who provide any audit, review, compilation, preparation, or attestation engagements. In other words, anyone with any accounting & auditing work.
As a mere starting point, the new standards will be relabelled as Quality Management Standards. Instead of QC system, we will now have a QM system.
As a reminder, QC or QM standards apply regardless of whether you go through a system review or engagement review during your tri-annual peer review. The QC/QM system is tested in a system review but you still must have a formal QC/QM system even if you only do comps and reviews.
This post will provide a quick mention of what I see as the three biggest changes followed by a lengthy summary.
A massive change that will impact small firms is that the annual inspection (which is currently required and will continue to be required) may not be performed by anyone who worked on the engagement.
For one person firms, this will require us to get someone outside the firm to perform the annual inspection. Two or three partner firms where the partners do essentially all of the work will also have to get someone from outside to do the inspection.
Two of the other changes of note: new risk assessment process and annual evaluation of quality management system.
The risk assessment process will require establishing quality objectives, identifying risks to achieving those quality objectives, and implement responses to address the quality risks.
After a one year delay to allow running the new QM system for a while the new requirement of an annual assessment of the QM system will kick in.
Proposed effective dates
The first Statements on Quality Management Standards, referred to as SQMS #1, is proposed to require the new quality management system be designed and implemented by December 15, 2023. The first annual evaluation of the system of quality management is proposed to be required within one year following December 15, 2023.
Rephrasing the effective date, the new QM system has to be in place before the end of 2023 (by 12/15/23 to be exact). That is about 2½ years from now. The first annual evaluation will be required one year after that, by the end of 2024 (specific deadline 12/15/24).
(Cross-posted from my other blog, Nonprofit Update, not because CPAs need this information, but because it might be helpful for your clients. You might also be able to use this illustration as a tool to explain different service levels to your clients.)
Let’s think about a football team and how they are positioned for scoring the winning points in the last few seconds of a tied game. They could be 4th-and-goal or perhaps not yet to a position for a field goal attempt.
Let’s use that illustration to explain the services provided by your outside accountant.
A CPA can provide four levels of services if you’re looking for financial statements.
You can hire a CPA firm to provide:
What is winning the game?
We all know what that is in football.
In our accounting illustration a winning score would be perfect financial statements. Every number is correct. Not just close-enough, but exactly correct. Every disclosure complies with every single requirement. The presentation and classification are picture perfect.
That probably never happens in real life, so let’s simplify it by saying that there is nothing even close to materially incorrect in any number, presentation, or disclosure. The financial statements are as close to perfect as is humanly possible.
That is what a win looks like.
Let’s say there is under a minute left in a tied game. Our favorite football team has just completed a successful drive and is sitting on the 1 yard line on fourth down. There’s only one play left in 30 seconds and the game is over.
Likelihood of getting a touchdown and winning the game is pretty good. Right about now the odds look incredible.
Update #91 newsletter from the California Board of Accountancy, dated Fall 2020, lists 33 disciplinary actions. The effective dates run from May 2020 through August 2020. Yeah, I’m just getting around to writing about the newsletter that arrived last November.
A few general observations before diving into a summary of the causes and levels of discipline.
Of the 10 stayed revocations for attestation failures, all but one had an attestation ban. General pattern is an audit failure will lead to a ban on attest services. The summary of the case does not give an indication why one CPA didn’t draw a ban.
Usually these are bans from performing any audits, reviews, compilations, or attestation engagements. Some of them were just bans from audits. Pattern seems to be the ban is for the duration of probation and then after that a firm may request permission to again perform attest work.
Imagine if you will, that attest work is a significant portion of your work and you cannot perform any of those for three years.
One big firm listed in this edition is PriceWaterhouseCoopers, who drew a stayed suspension with 18 months probation because of discipline by the SEC. They also earned a $300,000 fine and up to $26,000 reimbursement of costs for investigation and monitoring. An additional consequence is distributing a copy of the order to every employee who is in the state of California.
Of the seven disciplinary actions because of enforcement actions by federal agencies, six are from the SEC and one from PCAOB.
The attestation failures usually include three or four or more specific violations. For example, the actions may because there was not appropriate documentation, the opinion was not supported by workpapers, and there were violations of GAAS and violations of GAAP. Those are overlapping issues but a major audit failure will likely cause a violation in all of those areas. Of grim note for two of the attest failures is one of the listed charges includes creating documentation after release of the audit report. You can make your guess as to what an allegation of that nature includes but could have been creating documentation after workpapers had been called in for review.
Finding data on prior year contribution trends early enough in the year to have analytical value in a review or audit has long been a challenge. Usable data for 2020 is now available in March. This is current enough to allow leaders in churches and ministries analyze the 2020 financial results in time for it to be actionable.
Throughout the pandemic the Evangelical Council for Financial Accountability (ECFA) has been conducting quarterly surveys of its members. Lots of data has been gathered and processed.
On 3/4/21, ECFA published the results of their survey of full year 2020 revenue and expense trends compared to 2019. They have graciously made the results of the survey available for free. You can find it on this page of Feature Surveys. Click on the “Free Download” button beneath the Remarkable Resilience survey report dated March 2021.
The survey is based on responses from 559 churches and 730 religious nonprofits. That is a total of 1,289 responses. ECFA has lots of subsectors for its membership. For those sectors with 20 or more responses, the survey aggregates and reports results.
Who would benefit from looking at this survey? Two groups.
First, finance teams and senior leadership of churches and religious nonprofits to see financial results for 2020 of a large group of their peers. This provides an incredible opportunity to see how other organizations are doing.
Second, CPAs performing reviews or audits of churches religious not-for-profit organizations can easily find industrywide information to use as a benchmark. As mentioned earlier, financial information is usually published long after most of the reviews and audits have been released. It is rare I can find anything that is actually usable.
High-level results from the ECFA survey are summarized into three broad categories:
Note: This discussion is cross posted from my other blog, Nonprofit Update because it provides a live-action illustration of rationalization. Auditors study the concept of rationalization because that is a factor we consider when thinking through fraud risk assessment during an audit. Part 1 of this series is cross posted here. Exercise for CPAs is to read these two posts, then identify multiple points where the rationalization thought process transforms inappropriate actions into acceptable behavior.
At least one person on the constantly growing list of flaming hypocrites in public leadership has a sense of shame. Or, at least enough shame to realize she should retire. Eventually. Someday.
After two days of publicity about her non-Thanksgiving non-celebration trip to spend the Thanksgiving weekend with family she doesn’t live with, Dr. Deborah Birx made the announcement.
After two full days of controversy, Dr. Birx announced she will retire shortly after assisting in the transition to a new administration. Presumably, that means sometime in late January or early February. Or maybe March. Or maybe June.
Recall from yesterday the day after Thanksgiving she traveled from her home in D.C. to one of her vacation homes in Delaware for a 50 hour stay with her daughter, son-in-law, and two grandchildren, all of whom live in a different home she owns in Potomac.
When challenged about whether traveling to another state with people from a different household during the Thanksgiving weekend was appropriate given her very public advice not to travel at all over the weekend and not to be with anyone from a different household, she provided a splendiferous rationalization.
In May 2020, the AICPA published the second of their PR Prompts! newsletter. This semi-annual publication is designed to help firms stay current.
The format of the newsletter is set up to allow firms who provide peer reviews to put their logo and branding information at the top of the newsletter, print it, and send it to all their clients.
I received explicit permission to reprint items from the first newsletter. Since the email that accompanied the newsletter and the description of the top indicates firms are free to put their name on the material then distribute it, I am comfortable in posting information on my blog without further permission.
So here goes. The following information is from the AICPA. For ease of reading, following text will not be put into quotation marks even though it is a verbatim quote.
COVID-19 Updates and Resources
Many standard setters, including the ASB, FASB, GASB and PEEC, have evaluated, or are evaluating, effective dates and standard setting agendas. There are known and potential delays of effective dates of new standards and deadlines. As auditors navigate the challenges presented by the COVID-19 pandemic, the AICPA is working hard to provide help. They have launched an A&A resource center at aicpa.org/covidaudit where you can access free resources addressing pressing topics like remote auditing, subsequent event disclosures and going concern.
Going concern thoughts for accountants: I have stopped cross posting all my comments on the pandemic to this blog. The focus here is accounting and attestation issues.
The following conversation is worth listing here, so you can bring into consideration what is going on in the broader economy as you ponder your client’s going concern assessments. The economic damage from the shutdown is an issue for audits, reviews, and comps.
You might pay particular attention to comments by the Atlanta Fed on near-term GDP forecasts.
The damage from the lockdown is spreading. More news is emerging about the devastation that took place in just the first full month of the closure.
The damage will continue to grow the longer the shutdown continues. At some point it will start compounding, growing at a faster rate out of proportion to the time that is passing. Keeping the economy closed now is unnecessarily so the compounding damage is a choice.
Merely a few of the articles in recent days:
Guess on GDP shrinkage in next quarter
Disproportionate number of poorer households hit by job losses
Collapse of tax revenue in New York state
Collapse of home sales in Southern California
Another retail chain announce store closures and another announces liquidation
It is imperative to reopen the economy in full, not just for ‘curb-side delivery.’ If we don’t open soon, I fear the following articles will be mild in comparison to what we will see in the future.
This discussion will be posted on several of my blogs.
The damage from the shutdown of the U.S. economy will be severe. Having ‘flattened the curve’, rapidly expanded hospital capacity, and kicked critical production lines into high gear, it is time open up the economy before the second order impacts cause more health damage and death from the shutdown than from the coronavirus.
4/10/20 – originally posted on Medium but was pulled; do a bit of reading and then make your own assessment why the site didn’t want the article to remain visible to the public –Eight Reasons to End the Lockdowns Now – article was written by five medical doctors and one Doctor of Nursing Practice.
Some background articles for CPAs. Won’t be covering the CARES Act here or general pandemic news. Instead these posts focus on those of us running an attestation practice.
4/6/20 – Journal of Accountancy – ASB to consider one-year deferral of effective dates– There is a string of new audit rules that go into effect the end of this year. The ASB will be meeting on April 22 considering whether to postpone the effective dates by a year. Under consideration are SAS 134 through 139 which have already been issued plus SAS 140 which is expected this week. Those include: