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:
Did you know the AICPA has provided a tool you may use as a starting template to develop a Quality Control document?
If you perform compilations, reviews, or audits, you are required to have a written QC document. Even if you aren’t going through a system review. Even if you only do comps.
If you perform audits and will have to go through a system review, keep in mind you are obligated to have quality control program in place before the system review starts, even before the peer review year begins. That means you really really need to have a QC document in place. (Yes, I’m talking to you, my fellow sole practitioners.)
The AICPA’s template can give you an easy starting point, in case you want to step up your policy.
There are two documents, one tailored for a sole practitioner and the other for small firms. Here are links to the documents:
The accelerating pace of change doesn’t slow down merely because I have multiple audits in progress plus more that just started. Here are a few articles to help keep all of us up to date on two newly effective standards:
For a long time the professional requirements for addressing going concern issues have been located in the audit literature. Yeah, the accounting requirement was in the audit standards. There has been an effort for several years to this guidance out of the SASs and into GAAP. Two articles show the substantial progress:
11/8/16 – Charles Hall at CPA-Scribo – It’s Time to Apply FASB’s New Going Concern Standard– ASU 2014-15 creates a requirement in GAAP for management to assess whether there are conditions or events which raise substantial doubt about ability to continue as going concern.
This is effective for financial statements ending on or after December 15, 2016. Translation: 12/31/16 financial statements. That would be the ones you’re auditing or reviewing or compiling at the moment.
If you haven’t tuned into this new requirement, check out Mr. Hall’s article before you download the ASU for study. Hint: the new requirements on management will seem remarkably familiar.
In case you hadn’t thought about it, having a GAAP-based going concern requirement placed on management means that there is now a specific need to address going concern in a review or comp.
There are two new SSARS pronouncements. Most likely they will not be a big deal for most accountants, but if you work in the comp or review arena, you need to know they exist and you really ought to have a vague idea what is in them.
First, a tip on staying out of trouble on nonattest services…
11/1 – Journal of Accountancy – Nonattest services quiz– A great six question quiz on nonatttest services. Take the quiz to find out how well you are doing on independence and documentation requirements. By the way, if you miss some questions you probably taking out some really serious risk in your audit practice that you didn’t even know about.
This is a great opportunity to find out what you don’t know, which can hurt you.