audit

Disciplinary actions from California Board of Accountancy for late 2020.

….what you do not want to have happen to your license. Image courtesy of Adobe Stock.

Update #92 newsletter from California Board of Accountancy dated winter 2021 lists 14 disciplinary actions summarized below. This tally excludes one listed action which is ending probation for a CPA and another separately listed case for the corporation owned by an individual who is also disciplined.

All these actions are effective at various times during November and December 2020.

My tally of these cases:

Disciplinary actions from California Board of Accountancy for the middle of 2020.

Image courtesy of Adobe Stock.

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.

Here is a tally of the 33 cases:

The parade of alleged leaders who ignore their own Covid recommendations keeps growing.

Rationalization can blind our views and limit perspective. Image courtesy of Adobe Stock.

NoteThis 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 2 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. 

It is taking more and more time to keep up with the political and public health leaders who don’t bother to comply with the recommendations they give us.

This time it is Dr. Deborah Birx who blew off the travel restrictions and gathering size limits at Thanksgiving. Oh, pardon me. It doesn’t count as a Thanksgiving trip since she traveled to her destination the day after Thanksgiving.

Saddest part of this example of hypocrisy is it took place after a large volume of other supposed leaders drew massive criticism for ignoring the rules. It isn’t as if every political and public health leader hasn’t been given notice their behavior is being observed.

Scariest part is her rationalization that there was absolutely nothing wrong with the trip.

Last point in this discussion is the wish that every American had the same freedom she has exercised. Specifically, the freedom to make our own decisions on what is best for our family given our circumstances.

12/20/20 – Associated Press – Birx travels, family visits highlight pandemic safety perils – The day after Thanksgiving, Dr Deborah Birx, coordinator for the official White House coronavirus response team, traveled from her D.C. home to her vacation home in Delaware. Joining her in Delaware were her husband, daughter, son-in-law, and two grandchildren. While in Delaware they ate meals together for two days.

New audit report under SAS 134.

Image courtesy of Adobe Stock.

In May 2019, the Auditing Standards Board issued Statement on Auditing Standards Number 134, Auditor Reporting and Amendments, Including Amendments Addressing Disclosures in the Audit of Financial Statements.

SAS 134 will make a lot of changes to auditing standards. The most visible impact likely will be complete revision of the audit report.

You can download a copy of SAS 134 at this link

SASs 135 through 140 also make lots of changes in audit procedures. A lot.

All of the documents are interrelated and will be effective at the same time.

Over the next year or two I will probably write more posts talking about the changes. For the meantime here’s an illustration of what the new report will look like.

Effective date

As issued initially, the effective date would have been for audits of years ending on or after December 15, 2020. First financial statements affected would be December 31, 2020.

Then the pandemic hit.

In May 2020, the ASB issued SAS #141, Amendment to the Effective Dates of SAS Nos. 134-140.

You can download a copy here. This pronouncement defers effective dates of SAS 134 through 140 by one year.

All of them will now be effective for years ending on or after December 15, 2021. That means the long series of SASs will first be required for audits of December 31, 2021 financial statements.

Another change made by SAS 141 is the series of SAS may now be early implemented. This allows firms who were well underway towards implementation on 12/31/20 audits to continue their transition.

Sample of revised audit report

Status of players in KPMG fiasco from leaked PCAOB inspection lists.

Image courtesy of Adobe Stock.

As refresher, some time back senior level staff from KPMG worked to illegitimately gain access to the list of engagements which were going to be subject to inspection by PCAOB. You can catch up on the news by reading my posts with tag of Big 4.

This is old news at this point. Those of us interested in the ethical failure still want to monitor the status of the players. Previous list, found here, has been reworked since it was getting a bit cumbersome to update and confusing to read.

The five KPMG staff and one PCAOB staff who were charged are listed below with their status at various times. Updates will be mentioned as time passes and this page updated with new status.

Overall status:

  • 10/19/20 – 1 released from prison, 1 sentenced & awaiting deportation, 2 awaiting sentencing, 2 convictions on appeal.
  • 12/13/20 – 4 sentenced (of whom 1 released from prison, 1 to serve house arrest after deportation, 2 on probation/supervised release) and 2 convictions on appeal.

Updates:

  • 10/18/20 update – David Britt was sentenced to six months home confinement to be served from his new home in Australia after he is deported from the United States.
  • 12/13/20 update – Thomas Whittle sentenced to two years supervised release and Brian Sweet sentenced to time serviced, three years probation, and to-be-determined restitution.

 

Participants and their status:

=============== …

Increased disclosures for gifts-in-kind required by new accounting rule.

Image courtesy of Adobe Stock.

In September 2020 the Financial Accounting Standard Board issued ASU 2020-07.  Formal title for the document is Not-for-Profit Entities (Topic 958) – Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets.

Contributed nonfinancial assets means gifts-in-kind. The ASU does not apply to donated services or donated financial assets such as stocks and bonds.

ASU 2020-07 will only change the presentation of GIK on the statement of activity and require additional disclosures in the notes. It will not require any change to the valuation of donated pharmaceuticals (accountants call that recognition).

You can get your own copy of ASU 2020-07 here.

(Cross-posted from my other blog, Nonprofit Update, since this issue is of interest to auditors of charities.)

Statement of activity

The total of GIK will need to be presented as a separate line within the revenue & contribution section of the statement of activity, separate from donated cash and any donated financial assets.

Note disclosures

There are a number of new note disclosures which will be required for gifts-in-kind:

New standards on audit evidence and auditing estimates: SASs 142 and 143

Image courtesy of Adobe Stock.

So far in July, the AICPA has issued two new auditing standards:

The AICPA provides a list of Recently Issued Auditing and Attestation Standards: Information and Resources.

I will try to provide a condensed description of the condensed summary provided in the At a Glance press releases linked above.

Audit Evidence

IT tools for auditors – Extract from PR Prompts!, part 4

Buzzword Bingo: Blockchain” by planeta is licensed under CC BY-SA 2.0

Description of research tools for auditors working in the IT area is courtesy of the AICPA’s Spring 2020 PR Prompts! newsletter. 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.

Since the AICPA is making it available for firms to use in their marketing, an extract follows.

For ease of reading, following text will not be put into quotation marks even though it is a verbatim quote from the AICPA.

 

Digital Assets

The digital asset ecosystem is changing and expanding rapidly. For financial statement preparers or auditors, either currently in the digital asset ecosystem, or considering entering it, the AICPA’s Digital Assets Working Group developed a practice aid, which includes vital information for you on how to account for and audit digital assets. It is intended for those with a fundamental knowledge of blockchain technology, is based on existing professional literature and the experience of members of the Digital Assets Working Group and is specific to U.S. GAAP and GAAS.

Resources for auditors during pandemic – Extract from PR Prompts!, part 3

Image courtesy of Adobe Stock.

Following news on variety of audit issues is courtesy of the AICPA’s Spring 2020 PR Prompts! newsletter. 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.

Since the AICPA is making it available for firms to use in their marketing, an extract follows.

For ease of reading, following text will not be put into quotation marks even though it is a verbatim quote from the AICPA.

 

Resources from the AICPA’s Enhancing Audit Quality(EAQ) Initiative

Through the EAQ,  the AICPA shares resources and education to help you avoid the most common audit quality issues. Check out the latest resources:

COVID-19 Audit Implications

Deferral of SASs #134 to #140 – Extract from PR Prompts!, part 2

Image courtesy of Adobe Stock.

Following news on deferral of a long string of major SASs is courtesy of the AICPA’s Spring 2020 PR Prompts! newsletter. 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.

Since the AICPA is making it available for firms to use in their marketing, an extract follows.

For ease of reading, following text will not be put into quotation marks even though it is a verbatim quote from the AICPA.

Ready, Set, Implement: News on A&A Standards

Deferral of effective dates for SAS Nos. 134-140

Resources for auditors during the pandemic – Extract from PR Prompts!, part 1

Image courtesy of Adobe Stock.

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.

News For CPAs During The Pandemic: AICPA guidance on accounting, reporting, and auditing – 4/10

Image courtesy of Adobe.

Guidance from AICPA can help with financial reporting and auditing. Also, there is a need for COBOL programmers.

If you had not noticed, the California Society of CPAs is offering a lot of CPE webcasts on tax and auditing issues during the pandemic. Many of them are free. Yeah, no charge CPE. How ‘bout that?

4/8/20 – Journal of Accountancy – AICPA issues audit and accounting guidance FAQs on COVID-19 – The AICPA published a 21 page document on accounting and audit issues: Audit Matters and Auditor Reporting Issues Related to COVID?19

Articles for CPAs during the pandemic: CECL postponement & going concern – 4/4

Your new office. Image courtesy of Adobe Stock.

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.

Financial reporting issues to consider during early stages of COVID-19 pandemic

Image courtesy of Adobe Stock.

A range of financial reporting issues need careful attention during the COVID-19 pandemic. These issues are old news in the professional literature but need to be considered more intentionally.

The AICPA published a special report on March 18, 2020. The report, Consequences of COVID-19 Financial Reporting Considerations, was drafted by the Center for Plain English Accounting and is available at no charge.

On 3/14/29, I was Pondering impact of coronavirus prevention steps on financial statements. An auditor’s perspective. The AICPA report goes into far more detail.

Here, in bullet point italics, are the items mentioned for your focus, with a few of my comments for highlight:

  • Subsequent Events

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.

  • Subsequent Events – COVID-19

Disciplinary actions by California Board of Accountancy in first half of 2019.

That view is enough to make you cringe. Sort of like some of the situations recently addressed by the Board of Accountancy. Image courtesy of Adobe Stock.

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.

Revocations

audit fail other issue
1 3 felony
1 1 didn’t complete contracted service
1 audit fail
1 audit fail and no peer review
1 no peer review & expired license
2 probation violations
1 some deeper issues, not quite apparent from summary
4 8 total revocations

 

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.

Revocations stayed