A few more articles as you work through your audits, reviews, and compilations during the pandemic, plus a video on how to make your own cloth masks out of a t-shirt.
Key issues in this post:
Postponement of new CECL accounting
Deep dive into going concern assessment
3/26/20 – Nicola White at Bloomberg Tax – Congress Poised to Derail Biggest Bank Accounting Change in Decades – Congress put a provision in the giantic CARES Act to postpone CECL until 12/31/20 or when the governemnt declares the pandemic over. CECL otherwise went into effect on 1/1/20. This is the first time Congress has dictated accounting rules. Article mentions this is a reminder of the debate over mark-to-market during the Great Recession.
A few more articles as you work through your audits, reviews, and compilations during the pandemic. Stretch question at the end: what are going concern implications if a third of grad MBA students will defer classes a year if they are not on campus and just under half expect a large tuition discount if classes are online?
3/25/20 – Financial Management – Ethical leadership at a time of crisis – Encouragement to maintain high ethical standards in time of turmoil and uncertainty. Summary of tips: Be transparent, be empathetic, be available.
4/1/20 – AICPA – Addressing pandemic-related audit challenges– Reminder that while creative techniques can be used to perform audit steps, the professional standards have not changed. Article points to following document:
4/1/20 – AICPA’s Center for Plain English Accounting – Consequences of COVID-19 – Potential Auditing Challenges – Agility and creativity is needed to complete audits. Document is a reminder that the professional standards still need to be complied with because they have not changed.
Document reminds us there are a range of possible scope limitations in an audit. Discussion includes a range of issues:
Lots of articles are appearing that can help CPAs during the pandemic. There are new and depressingly creative ways this is going to affect financial reporting. I’ll start mentioning some of those articles that grab my attention and may be of interest to you.
3/31/20 – FEI Daily – How Lease Accounting Will Be Affected by Coronavirus– Turmoil in leasing office space will create lots of complications under ASC 842, the new lease accounting rules. Article calls attention to: rent concessions, discount rate, fair market values, impairment, partial termination, reassessment, full termination abandonment, and information delay.
Here, in bullet point italics, are the items mentioned for your focus, with a few of my comments for highlight:
Type II subsequent events are those which take place after the financial statement date which are so significant that they warrant mention in the financial statements to keep those statements from being misleading.
Subsequent Events – Market-Value Declines
A technical Q&A (TQA 9070.06) indicates there are some occasions that can arise which warrant adjusting financial statements based on subsequent declines in market value.
If you are an auditor getting ready to issue opinions on client financial statements, you might want to ponder the subsequent event implications of the U.S. shutting down large portions of the economy this week. Might want to take a closer look at going concern assumptions.
If you happened to have slept well last night, you might ponder the impact on the financial statements you released a couple weeks ago.
Here are some initial thoughts for consideration as disclosable material subsequent events and perhaps contingent liabilities:
Update newsletter issue 89 for Fall 2019 has 33 disciplinary actions listed. Timeframe of the effective dates is the first half of 2019. My recap of actions by the California Board of Accountancy is listed below. I counted as one action those situations involving a firm and the owner of the firm.
didn’t complete contracted service
audit fail and no peer review
no peer review & expired license
some deeper issues, not quite apparent from summary
Of the CPAs with felony issues, two were for embezzlement, one also had an audit failure, and another ended up with conviction on 12 counts.
Two of the revocations were for rather extensive violations of a previous disciplinary action.
The new Update newsletter from the California Board of Accountancy goes back to providing details on disciplinary actions. The Winter 2018 edition (#86) takes 20 pages to describe the 24 actions. The previous Update provided far less detail, which generated lots of feedback to the board, so the newsletter will again give the ugly details for the causes for discipline.
Update 11/30/18: Thanks to CBA for listing the messy details on what CPAs are doing to earn their consequences.
Three things jump out at me from the current list of discipline.
First, every action comes with a substantial financial penalty in the form of reimbursing the CBA for their investigative costs.
Second, just about every CPA that got in trouble for audit or review problems was given a ban from performing attestation work until some time in the future when the firm requests and receives permission from CBA to again perform such work.
Third, several CPAs received a suspension from their CPA practice. This means the individual may not perform any actions which would otherwise require a license. I think that means the firm halts all their attestation work and unless also holding an enrolled agent credential ceases their tax compliance work.
Here is my summary of the causes of discipline for the license surrenders and the stayed revocations:
Starting with the newest Updatereport for Fall 2017 (#85), the California Board of Accountancy has stopped listing the underlying problem leading to disciplinary action. This means it only took 16 pages to list the 44 actions reported currently. It also seems the CBA is listing actions against firms and the practitioner together.
This means the cringe inducing details are not immediately visible, even though the full disciplinary reports are public records and publicly available. I didn’t bother to take the time to research the reports.
I have tallied the current batch of discipline cases. Underlying problem is inferred by me based on the comments in the newsletter. I haven’t looked up any of the cases or looked up the reg sections cited for discipline. So, with those caveats, here are my inferences of the current disciplinary actions:
You might learn a few things from a list of Forty Mistakes Auditors Make. If you can identify a few ways to improve your audit approach you could save time, improve the quality of your audit, and maybe reduce your risk.
Lots of auditors are in the midst of planning their year-end audits and reviews. Now would be a really good time to think about how to do better, more efficient work.
Writing at CPA Scribo, my friend Charles Hall outlines a number of goofs made by auditors. I’ll list a few tidbits in order to encourage you to read and ponder the whole list:
There is a six page listing of common deficiencies identified during peer reviews of complexion and review engagements described in the AICPA’s new risk alert Developments in Preparation, compilation, and Review Engagements – 2017/2018.
Here are a few paraphrased highlights of the deficiencies. I will list items that I perceive are more serious or more pervasive.
You might consider reading through the full list and mentally comparing it to how you perform review and compilation engagements to see if there’s something you are missing.
The Winter 2017 Update newsletter (#83) from the California Board of Accountancy shows that the board is continuing its active efforts on disciplinary actions.
There are obviously quite a few of our colleagues who are not performing up to standards.
I’ve heard stories from a distance that the Board has hired more enforcement staff. As I have read the last few issues of Update, it sure seems to me that the increased staffing is showing up in an increased pace of closed cases. Maybe my perception is off, but it seems there are more cases closed with more serious consequences in the last year or so.
I count 39 cases documented in this edition of Update. Only 2 of these have discipline level of suspension or less. All the others are surrenders, revocations, or stayed revocations. Just as a guess, I think that means the editor of Update is filtering out most of the suspensions.
I count 19 cases of those 39 with peer review problems or audit, review, or compilation failures or some combination thereof. I’ll break that down further: