Compilations & reviews

More disciplinary action from California Board of Accountancy over peer review messes.

Image courtesy of Adobe Stock.
Image courtesy of Adobe Stock.

The Fall 2016 Update newsletter from the California Board of Accountancy shows CBA continues to be deadly serious about CPAs avoiding the peer review program.

I previously went into detail on disciplinary actions in one newsletter:  If you have been blowing off Peer Review, you really ought to get with the program. This time I will just give an overview.

Revocations of license

“Be Prepared – A Comprehensive Peer Review Update”

Image courtesy of Adobe Stock.
Image courtesy of Adobe Stock.

The following article provides a superb update on recent developments in the peer review program. The article is graciously provided by the California Society of CPAs and the information described here applies in all jurisdictions across the U.S.

Because the entire article is quoted verbatim without any additional comments from me, none of the article will be placed in quotation marks.

Originally published by CalCPA (www.calcpa.org) in the October issue of California CPA magazine.

Used with written permission of the California Society of CPAs. 

 

Be Prepared – A Comprehensive Peer Review Update

By Linda McCrone

 

Peer review is a successful program that helps firms improve their quality control systems and elevate the quality of accounting and auditing engagements. The AICPA contributed the software program that tracks peer reviews and the staff that manages the program. AICPA member volunteers contribute their time to oversee the program, keep the peer review program forms current and make certain that the peer review standards remain relevant. But like any successful program, peer review must continue to evolve to keep up with events.

 

Background

“Compilation of Pro Forma Financial Information”

Image courtesy of Adobe Stock.
Image courtesy of Adobe Stock.

SSARS #22 addresses Compilation of Pro Forma Financial Information. This document rolls SSARS #14 into the clarified format. This is the last section of the old SSARS to be rewritten as a clarified document.

You can find the document here.

It will be effective for compilations of pro forma info dated on or after May 1, 2017.

Charles Hall has a superb recap of the document at his blog, CPA-Scribo:  Are You Up to Speed on the New Pro Forma Information Standards?  If you want to get up to speed really fast, check out his article.

Two deadlines to keep in mind if your peer review didn’t go well

Image courtesy of DollarPhotoClub.com
Image courtesy of DollarPhotoClub.com

If your peer review resulted in anything other than a pass report there are a couple of deadlines you need to remember if you are in California.

Keep in mind you are responsible for your compliance with regulations. Here are a few tips to point you in the right direction. These comments discuss the regs in California. If you are in another state, you really ought to check out what your board of accountancy has to say. I’ll guess there is some comparable reporting requirement when a peer review does not turn out well.

Notification requirement for reports less than pass — 45 days

If you received either a pass with deficiency or a fail report, you need to be in touch with the California Board of Accountancy (CBA).

One framework for the ideal CPA trade association – Implications for the proposed AICPA-CIMA merger

 Image courtesy of DollarPhotoClub.com
Image courtesy of DollarPhotoClub.com

Professors Paul Miller and Paul Bahnson writing at Accounting Today describe their ideal professional association – and why the AICPA doesn’t measure up.

Use their framework to assess the proposed merger of the AICPA and CIMA.

My previous comments on the merger:  On that merger of the AICPA and the CIMA resulting in a new AICPA.

The professors suggest the following premises for what a trade association would look like if the goal was to advance the profession and the interest of its members. I will quote their comments:

Ballots are out for the proposed AICPA merger with CIMA

Got an email last evening which contained a link to the on-line ballot for the vote.

The AICPA has proposed combining their operations with the Chartered Institute of Management Accountants (CIMA). The new entity will be the Association of International Certified Professional Accountants. Yes, to confuse the market place there will be another AICPA.

I previously pondered On that merger of the AICPA and the CIMA resulting in a new AICPA.

Well, the ballots are out. I am guessing yours has arrived.

Voting took me just a moment to complete.

Please vote.

On that merger of the AICPA and the CIMA resulting in a new AICPA.

The AICPA is proposing a merger with the Chartered Institute of Management Accountants (CIMA) with the merged entity being called the AICPA.

Yes, that’s right. The new organization will be the Association of International Certified Professional Accountants.

Fifteen years ago we had the “cognitor” mess. That faded.

Now we have the CGMA credential which initially was available to anyone with a CPA certificate that wanted to write a check. Now it is open to anyone that wants to take a rigorous test, with no CPA credential needed. Apparently that hasn’t gone over very well, according to an article I will mention shortly.

So now we have a proposed merger of the AICPA (with CPA) with the CIMA to create the AICPA (with professional accountants in title).

An article at Going Concern is the starting point for my discussion today: Don’t Forget: Voting on the AICPA-CIMA Merger Starts on Monday.

Caleb Newquist doesn’t see much purpose here other than a power play by the AICPA (with CPA in title) leadership to increase their power by bringing in a lot of new members. He also sees AICPA (without CPA in title) as a dilution of the CPA brand.

That is my biggest concern. In addition to removing certified public accountant from the title of our new trade association there is a serious risk this would reduce the focus on the CPA world which would further reduce the brand.

Tom Hood, CEO of the Maryland Association of CPAs, speaks in favor of the proposal in a comment at the Going Concern article.

Background

If you want background from the AICPA, you can find it at the accounting horizons website.

In case you are wondering about the use of the word merger, looks to me like that is the appropriate description. Consider the second bullet point on the highlight page: …

Dividing line between bookkeeping and preparation services

Is this bookkeeping or preparation of financial statements? Image courtesy of DollarPhotoClub.com
Is this bookkeeping or preparation of financial statements? Image courtesy of DollarPhotoClub.com

SSARS #21 explicitly defines bookkeeping as being outside the scope of the SSARS literature. The question becomes what is bookkeeping and what is a preparation engagement.

The AICPA has an article that can help highlight the dividing line: Bookkeeping or preparation service? That is the question.

Article suggests three ways to look at a service to help a CPA figure out whether Section 70 of SSARS #21 applies. If you are wondering, please check out the full article.

Misbehavin’ CPAs #7. Sanctions by California Board of Accountancy, part 2

That may be how the vast majority of CPAs perform all the time, but some CPAs miss the target completely. Image courtesy of DollarPhotoClub.com
That may be how the vast majority of CPAs perform all the time, but some CPAs miss the target completely. Image courtesy of DollarPhotoClub.com

Previously mentioned that I looked disciplinary actions reported in the last four newsletters from the California Board of Accountancy (CBA). Want to better understand what happened with firms that got in trouble for audit quality or for not getting a peer review when one was required.

Will continue that discussion by looking at sanctions imposed on smaller firms and then self-imposed trouble generated by some larger firms.

Sanctions

Misbehavin’ CPAs #6. Sanctions by California Board of Accountancy, part 1.

That may be how the vast majority of CPAs perform all the time, but some CPAs miss the target completely. Image courtesy of DollarPhotoClub.com
That may be how the vast majority of CPAs perform every day, but some CPAs miss the target completely. Image courtesy of DollarPhotoClub.com

Three times a year the California Board of Accountancy issues a newsletter. It contains a variety of information useful for CPAs. If you are a CPA, you really ought to be reading the newsletter.

That newsletter is also where the board publicizes disciplinary actions against CPAs.

In the last few newsletters I’ve noticed a number of cases where firms are sanctioned for substandard audits. Have also noticed a number of firms sanctioned for not getting a peer review when it was required or fibbing to the board whether they had complied with the peer review standards.

I wanted to understand better what I’ve noticed in passing so decided to dive into the disciplinary reports to get a better picture of the extent of sanctions for audit quality and peer review issues. I looked at the Fall 2014, Winter 2015, Summer 2015, and Fall 2015 newsletters.

That covers 16 months of reporting for disciplinary actions by CBA.

I focused on sanctions for audit issues excluding anything that was a follow-up to PCOAB or SEC sanctions. That rules out quite a few cases.

Also ignored a long list of social misbehavior such as DUIs (several incidents), fabricating Form E (once – fabricating the experience report? – really??), embezzlements, disbarment (once), and other such human foibles. Also excluded a variety of contingency fee violations, breaches of client trust, and sundry tax fiascos.

For context, the Fall 2015 newsletter had 28 disciplinary actions of which 5 were of interest for this little bitty research project. Of those 5 cases, the public notices refer to 2 firms which had substandard audits, 1 had a substandard compilation, and 4 included failures to get a peer review when required of which 2 fibbed to CBA about compliance with the peer review requirement.

Scope and result of my analysis

Primer on Compilation and Preparation engagements under SSARS #21

Image courtesy of Amazon. Used for this review under Fair Use.
Image courtesy of Amazon. Used for this review under Fair Use.

Charles Hall has written a book describing a new service called ‘preparation’ and the changes for compilations from SSARS 21.

If you perform a few compilation engagements a year and have not started paying attention to the complete rewrite of comp and review rules, this is the book for you. The transition date is financial statements for years ending after December 15, 2015. Essentially this applies to all your 12/31/15 comp and review work.

Multiple definitions of materiality are in play

Image courtesy of DollarPhotoClub.com
Image courtesy of DollarPhotoClub.com

If you would like to compare the various definitions in play for materiality, then Emily Chasan has the article for you at the Wall Street Journal on 11/3:  Definition of Materiality Depends Who You Ask.

The definition readers of this blog have incorporated deep into their brain is from FASB, as follows:

Frequently asked questions about SSARS 21

For a limited time, the AICPA’s Center for Plain English Accounting is making three of their reports available for free. You can find them here.

Of particular note is SSARS No. 21: Frequently Asked Questions and Answers. There are 22 Q&A that can help you get oriented on a new way to do reviews, comps, and preparation engagements. Also provides good implementation ideas.

Might want to check it out quickly and archive a copy since there is no comment on how long these items will be made available on a complimentary basis.

Looks like the CPEA has some good resources. Seems like a good idea to have their voice inside the AICPA world. However, at an annual membership cost of $795 for a firm with five or less professionals, I won’t be joining anytime soon.