audit

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

SEC practice ban for three accountants tangled up in KPMG/PCAOB fiasco.

Securities and Exchange Commission Building, Washington, DC.

Going Concern is doing a great job keeping us all updated on the status of the current felons / former KPMG and PCAOB staff tangled up in the inspection list theft fiasco.

Several tidbits from Jason Bramwell on 1/16/20 I just noticed:  SEC Takes Away Privileges From Another Felon In KPMG/PCAOB Scandal.

Staff who have been banned by the SEC from practicing before the Commission:

“Auditor Reporting” – PR Prompts!, part 5

Image courtesy of Adobe Stock.

A complete overhaul of the auditor’s report for audits of 12/31/20 financial statements is going to be a very big deal. Please tune in to the new standards!

In November 2019, the AICPA published the first of a new semi-annual newsletter, PR Prompts!, designed to help CPAs keep current on peer review news.

The AICPA gave me permission to reprint portions of the newsletter on my blog.

This is the fifth of six posts to help you stay up to date.

I have looked at this page on the AICPA website. It is quite helpful. If you provide audits to your clients, it would be worth your time to find, browse, and bookmark this page.

The following comment is quoted verbatim. For ease of reading it will not be set inside quotation marks:

 

Auditor Reporting

The form and content of the auditor’s reports will change substantively which will be effective for audits of financial statements for periods ending on or after December 15, 2020. Statement on Auditing Standards (SAS) No. 134, Auditor Reporting and Amendments, Including Amendments Addressing Disclosures in the Audit of Financial Statements, was issued in May 2019. SAS No. 134 includes a new AU-C section 701, Communicating Key Audit Matters in the Independent Auditor’s Report, and replaces the following AU-C sections in AICPA Professional Standards:

New SAS and SSAE modify definition of materiality

Image courtesy of Adobe Stock.

The Auditing Standards Board has issued SAS 138 and SSAE 20 which change the definition of materiality. Under current audit standards, the materiality definition matches what is currently in use by IASB and IAASB. The revision will get the definition to match what is currently used by the American legal system, PCAOB, SEC, and FASB.

The new definition:

Last person in KPMG inspection leak fiasco enters guilty plea

Image courtesy of Adobe Stock.

The last person to face justice in KPMG’s fiasco of gaining illegal access to PCAOB inspection lists entered a guilty plea a few weeks before his scheduled trial.

David Britt entered a guilty plea on 10/3/19 to one count conspiracy to commit wire fraud. His trial would have otherwise started on 10/21/19.

Sentencing is scheduled for 5/8/20.

Second sentencing in KPMG fiasco of getting list of PCAOB inspection list.

Image courtesy of Adobe Stock.

The most senior level former partner charged in the KPMG “steal the exam” fiasco was sentenced to one year and one day in prison for his role in the leak of PCAOB inspection targets. David Middendorf received a fraction of the 37-46 months requested by US Attorney office and 46-57 months recommended by the United States Probation Office.

Some articles to provide lots more info:

Wall Street Journal – Jean Eaglesham – 9-11-19 – Ex-KPMG Partner Sentenced to a Year and a Day in ‘Steal the Exam’ Scandal

Crain’s New York Business – Aaron Elstein – 9/11/19 – Former top KPMG partner gets a year and a day in prison – Article points out the sentence of a year plus one day means Mr. Middendorf is eligible for good behavior credit.

More details on first sentencing in KPMG/PCAOB fiasco as second sentencing is expected today.

Image courtesy of Adobe Stock.

The second sentencing in the fiasco of leaking PCAOB’s inspection list to KPMG is set for 10:30 today, 9/11/19.

Background on Mr. Middendorf sentencing

David Middendorf will face federal judge J. Paul Oetken to learn how long he will be in federal housing. Judge Oetken is handling all of the trials in this case.

On 7/26/19 Mr. Middendorf submitted his arguments on sentencing (docket #379). If you have lots of time on your hand, you can also read the 25 attachments.

The US Attorney filing had this comment (#394), which I’ll quote:

New audit standards for ERISA audits and other information in annual reports (SAS 136, 137)

Image courtesy of Adobe Stock.

Two more audit standards have been issued by the Auditing Standards Board addressing ERISA audits and other information in an annual report:

  • SAS 136Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA
  • SAS 137The Auditor’s Responsibilities Relating to Other Information Included in Annual Reports.

Comments from recent continuing education classes worth repeating: not-for-profit entities.

Image courtesy of Adobe Stock.

Here are some fun or interesting or useful tidbits from the October 2018 A&A and the June 2019 Not-for-profit conferences presented by California Society of CPAs that apply to not-for-profit organizations.

Previous posts had comments on

Non-attest services and Yellow Book independence. Everyone probably knows that charities with more than $2 million of revenue who are registered with the California Attorney General must have an audit. Excluded from the requirement would be religious organizations, who are exempt from registering with the AG.

That requirement was created by the Nonprofit Integrity Act of 2004, so it’s old news.

The best payoff from attending CPE conferences is to compare every piece of information you hear to what you think you know. So, here is one of the big rewards for me attending this class…

Comments from recent continuing education classes worth repeating: “get in or get out”

If you are an auditor and that is a diagram of new audit rules, then you need to completely understand the graph. Image courtesy of Adobe Stock.

Here are some fun or interesting or useful tidbits from the October 2018 A&A and the June 2019 Not-for-profit conferences presented by California Society of CPAs.

Previous posts had comments on accounting and auditing as well as peer review.

“Get in or get out”

The second speaker who discussed peer review in previous post also said that if you are doing A&A work you need to “get in or get out.”

Let me translate that…

Comments from recent continuing education classes worth repeating: peer review

Image courtesy of Adobe Stock.

Here are some fun or interesting or useful tidbits from the October 2018 A&A and the June 2019 Not-for-profit conferences presented by California Society of CPAs.

Previous post had comments on accounting and auditing.

Peer review

One speaker said there are several common issues for weaknesses in risk assessment:

  • Limited assessment
  • No linkage (relating the assessment of risks to further audit procedures)
  • Poor use of third-party practice tools
  • No assessment of IT risks

Not doing any risk assessment is now a major problem for you in a peer review if you missed the boat on the risk suite of standards.

For Yellow Book audit, the workpapers must document SKE (skills, knowledge, experience) of staff overseeing non-attest services.  Although the professional standards do not exactly require documentation of SKE for non-attest service on a non-yellow book audit, the speaker said (if I heard correctly) that the California Peer Review Committee has a considered opinion that such documentation is required.

So, if you have non-attest services on a non-yellow book audit, …