audit

“The dozy watchdogs” – Deep discussion in The Economist on the state of audit profession

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Gotta’ love the drawing of a seated Doberman with a wondering look on his face as he stares at a trail of muddy feline paw prints. Staring around helpless are three other dogs. The befuddled watchdog has a tag labeled “PwC” in case you hadn’t yet caught the point.

The previous drawing was of an overfed cat in a three-piece suit helping himself to a bag of cash from a safe as four dogs snoozed in front of the safe. Said dogs have a tag identifying each as a member of the Big 4.

If you are an auditor, you really should get a fresh cup of coffee and check out The Economist’s discussion of The dozy watchdogs. Will let you see what non-accountants think of the profession (not too much) and the job the big firms are doing (not so great).

Yeah, there is a problem

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More thoughts on the resurrected Andersen brand. Part 3

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Here are a few more articles discussing the acquisition of the Andersen brand name by a tax-only accounting firm. My previous articles here and here.

9/8 – re:The Auditors – More on My Reuters Breakingviews Column: The Andersen Tax Name Grab – Francine McKenna brings in more background and other articles on the return of the Andersen brand.

She even quotes the last part of my previous post which said that if a small portion of the worldwide CFOs think the Andersen name denotes quality then there is huge market for the formerly named WTAS firm.

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More good stuff for auditors – 9/1

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A few links and comments of interest to auditors. The Andersen name is back, how to classify ‘trapped cash’, government assigning audits, and The F Student (twice). Wow, am I confused. The Andersen name resurfaces, and vinyl record sales are surging. What’s next, disco?

August 2014 – The CPA Journal – Meet the Future of the Profession – Rumbi Bwerinofa-Petrozzello is one of the bloggers I follow. She writes on fraud at Figuring Financial Forensics.

She and three other young professionals were featured in the linked article in the NY state society. The four discussed their perspectives. Well worth a read.

In particular, I enjoyed the following comment from Ms. Bwerinofa:

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Why does PCAOB definition of ‘audit failure’ overstate audit failures? Perhaps because saying ‘audits that should have done better which we found after intentionally looking for audits that might have deficiencies’ doesn’t sound as severe.

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The PCAOB’s self-created definition of audit failures overstates the severity of issues found during inspection, according to a board member of the PCAOB.

Journal of Accountancy reports on 3/21 a PCAOB member suggesting Stop using “audit failure” term in PCAOB reports, Hanson says.

Mr. Jay Hanson says the definition used by the PCAOB is causing confusion about the severity of issues identified during inspections. Here’s the range of definitions of that phrase:

Casual description of PCAOB usage, according to the article:

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Why does PCAOB definition of ‘audit failure’ overstate audit failures? Perhaps because saying ‘audits that should have done better which we found after intentionally looking for audits that might have deficiencies’ doesn’t sound as severe.Read More »

Newest book on differences between audits, reviews, and compilations now available in print and for Nook

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Print copy and Nook e-book are in addition to availability for the Kindle and another half-dozen formats.

audit review compilation cover for wordpress croped

The book is an intentionally short read at about 30 pages. The print copy has 20 pages of text.  Focus is to quickly describe the differences between those levels of services using three illustrations:

  • A football game – How does advancing to the 10-yard line compare to an audit?
  • What would a review look like in a football game?
  • Buying a used car – How does taking the car for a test drive compare to a review?
  • Filling a bucket – How filling it up with water to different levels illustrates the differences between the levels of service.

It also explains the differences in plain language. Well, at least using less accountantese than you would usually get from an accountant.

This is a compilation of posts previously appearing on my blogs, with slight editing.

Where can you find the book?

Print book at Amazon here.

Nook e-book at Barnes and Noble here.

Kindle e-book at Amazon here.

Also available here in other formats:

  • ePub format for your iDevices
  • PDF
  • text
  • Mobi for your Kindle device

Some thoughts for CPAs after reading the Tampa Bay Times, CIR, and CNN reporting on GIK shipments

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The Tampa Bay Times has run the article they wrote with CNN and the Center for Investigative Research:  No accounting for $40 million in charity shipped overseas. It looks to be the same text as in the CIR report, which I mentioned here.

(cross-posted from my other blog, Nonprofit Update, because this discussion especially applies to auditors.)

I have performed lots of audits over the years but don’t have any clients with the kind of GIK programs that have been in the news lately. That does two things. First, it frees me to pontificate and speculate because the independence rules don’t limit me in discussing an actual client situation.  Second, it gives me an auditor’s knowledge, experience, and intuition to apply to the news I read.

A few thoughts for CPAs after reading the article again…

Opinion shopping.

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“Audit. Review. Compilation. What’s the difference?” – New book now available.

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Audit. Review. Compilation. What’s the difference? – Illustrations using a football game, buying a used car, and filling a bucket.

audit-cover

What’s the difference between getting an audit, review, or compilation from your CPA firm? This short, 29 page book will help you understand.

Three illustrations help explain the differences:

  • A football game – How does advancing to the 10-yard line compare to an audit? What would a review look like in a football game?
  • Buying a used car – How does taking the car for a test drive compare to a review?
  • Filling a bucket – How filling it up with water to three different levels illustrates the differences between three levels of service.

This is a compilation of articles at my blog, Nonprofit Update.

The book is now available at Amazon.

Now available here in other formats:

  • ePub format for your iDevices
  • PDF or text
  • Mobi for your Kindle device

Soon to be available at Barnes and Noble.

100 year history of the audit profession in under 300 words

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Professor Dave Albrecht outlines the origins of public accounting and status today:  Black Friday, Black Accounting, White Christmas.

Picture then:  demand from customers (large companies) to providers (public accountants) for a value-added service (audit) the large companies wanted so they could differentiate from their competitors.

Fast forward 100 years.

Picture now:  a self-protecting group of large firms that resist market needs and loud requests for change.

History and sad state of auditing covered in about 260 words, located in the middle part of the post.

Check it out.

Football as illustration of differences between audits, reviews, and compilations

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Since football season is in full swing, let’s go to the nearest stadium to compare an audit to a review, to a compilation, and to the newest level of service, a preparation report.

(Cross-post from my other blog, Nonprofit Update.)

Audit

If you were performing an audit, you would be on the field and receive the kickoff at your 20-yard line. A series of passes and runs would slowly move the ball. With effort you would advance to your opponent’s 10-yard line. Good touchdown position.

Advancing the football would be the same as gathering evidence to provide you a reasonable level of assurance so you could issue an audit opinion on the financial statements.

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3 bank confirmation frauds

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Previously mentioned that AU-C 505.07 requires auditors to look at the address used on confirmations.

Here are three illustrations of how things can go sour when sending bank confirmations: PFGBest, Parmalat, and a small company in North Carolina:

PFGBest – Peregrin Financial Group

The organization’s CEO was sentenced to 50 years in prison and ordered to pay restitution of $215.5 million.

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Auditors need to verify the addresses on confirmations. Oops.

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Clarified section 505, which you can find here, discusses external confirmations.  One thing I missed previously is a new requirement to verify the address used on confirmations. I looked in the pre-clarity standards and couldn’t find that requirement there.

Put simply, we as auditors need to make sure confirmations are using good addresses.

For cash, there is a commercial service, Confirmation.com, that can be used to make sure your confirm gets to where you want it to go.

This issue also applies to:

  • Accounts receivable
  • Notes receivable
  • Investments
  • Accounts Payable
  • Notes Payable

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Most common audit deficiencies that generate ethics violation investigations

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The AICPA’s Professional Ethics Division has published their report on most common ethics violations in the last year.

About 40% of the cases investigated by the Division deal with audits of government agencies and NPOs.  That’s a depressing portion of ethical issues arising from those two areas. I doubt that is reflective of portion of total audits performed.

That statistic should end the perception that audits of government agencies and NPO don’t have risk. If there is a disproportionate possibility you will wind up in front of an AICPA Ethics hearing, you are not dealing with a low risk audit.

Their report provides a good survey of the major issues.

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Are balance sheets unauditable? 2

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Previous post raised the question whether it is possible that current accounting rules make a modern balance sheet so complex that it is essentially unauditable.

Another item described by Grumpy Old Accountant Anthony Catanach’ column Is FASB Killing the Auditing Profession? is the PwC audit tool of cumulative audit knowledge and experience.

Audit team experience as substantive assurance?

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Are balance sheets unauditable?

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Is it possible that current accounting rules make a modern balance sheet so complex and judgment filled that it is essentially unauditable?

The answer is a hesitant yes, if I’m correctly reading Grumpy Old Accountant Anthony Catanach’s column Is FASB Killing the Auditing Profession?

He contrasts two parts of the PCAOB reports on inspections of PricewaterhouseCooper (PwC).  The PCOAB released two consecutive inspection reports for the firm.

My understanding is the confidential portion gets released if you don’t fix the issues by the next inspection. That means to get two consecutive reports released means the problems identified during inspection one weren’t fixed before inspection two and still had not been resolved during inspection three. Ouch.

Reduce partner time on complex audits

Prof. Catanach combines two issues.

First, the firm’s response says the issues involved are …

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