Attestation Update – A&A for CPAs

Technical stuff for CPAs providing attestation services

More good stuff for auditors – 1-28-14

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Eight articles on the ‘net you might find helpful as an auditor –

The long simmering dispute over the PCAOB getting access to audit workpapers of firms working on China-based companies has stepped up to another level.  An administrative law judge banned the China-based subs of the Big-4 from signing opinions for six months. This is several orders of magnitude removed from my practice. I’m also guessing it’s outside the practice all the readers of my blog, but that is what makes it fascinating to watch:

1-23 – Wall Street Journal Judge Suspends Chinese Units o Big Four Auditors – Michael Rapoport gives a great overview.

1-25 – re:The Auditors – One Way or Another: The SEC Versus The Chinese Big Four Firms – Francine McKenna provides lots of quotes & links, color commentary, accompaniment of a song from Blondie (“One way or another I’m gonna find ya / I’m gonna getcha getcha getcha getcha /One way or another I’m gonna win ya / I’m gonna getcha getcha getcha getcha”), and two suggestions how the SEC could reach out and ‘getcha’ some Big 4 firms: collusion and anti-trust.

Way over my pay grade. But still fun to watch.

Of more relevant interest to our practices:

12-16 – Capital Ideas – What would happen if the Big Four became the Big Three – In a long article, Francine McKenna walks through the likely cost if a catastrophic event reduces the Big 4 to the Big 3. The research also applies to mandatory auditor rotation.

12-16 – J of A – Five tips for successful revenue recognition implementation – FASB and IASB are expected to issue the revenue recognition standard in the first quarter of ’14.

My contribution:

Tip #6: get a big bottle of aspirin. The pain will be severe.

1-3 – The Accounting Onion – My Safest Prediction for 2014: New Revenue Recognition Rules that Nobody Wants – Broad shot at FASB for his first post of the new year. IFRS convergence dropped due to issuers and users seeing high costs and negligible benefits, lease accounting ED is on life support, and “continued dithering” on loan loss accounting.

As for revenue recognition, after 12 years of discussion ,users and issuers aren’t pushing to get new rules. The good professor thinks there will be a series of interpretations after the final rule is approved in Q1. That makes sense – such a massive change will require clarification on lots of questions that will arise after issuers try to implement. Oh, the fundamental change in GAAP will be approved…

notwithstanding any demonstrated need or benefits of new rules

The most unsettling long-term possibility raised by Prof. Selling is a hint that the drawn out time to approve messy final rules might lead the SEC to revisit its decision to let FASB be the principle standard setter for GAAP. See paragraph 5 of the article.

1-13 – Wall Street Journal – Surprise! Audits Dig Deeper – A large volume of deficient audits during PCAOB inspections (read any five consecutive posts from Going Concern to find updates) combined with a PCAOB alert last year has the Big 4 digging even deeper into testing whether internal controls actually exist and are operating effectively. Fees and hours going up.

Check out this comment from the Pfizer controller when discussing the need to prepare more minutes for meetings and more evidence for valuations:

“The view is, if it’s not documented it didn’t happen,”

Welcome to the club. Auditors have been there for years.

Interesting tidbits for an “average” public company audit:  17,000 hours, $4.5M fee, $265 average hourly rate, 4% or 5% annual increases in fee.

1-20 – re:The Auditors – Madoff, MLK, Buddha And Elusive Nature of Self-Interest – An annual repost of one of Francine McKenna’s favorites.  One of my favorites too. Worth every moment of your time to reread it once a year.

Great reminders there of many things, like our real client is the public, not the person who signs the engagement letter.  Like, laws and judicial systems can’t make people do the right thing or behave ethically, but those systems can restrain those without a conscience.

Two great lines from the post:

Martin Luther King Jr.: “Morality cannot be legislated, but behavior can be regulated. Judicial decrees may not change the heart, but they can restrain the heartless.”

Regulate the immoral. Restrain the heartless.

I wrote two posts, partly in response to the ideas in Ms. McKenna’s article:

1-18 – The Economist – Charging more, getting less– Talking about attorneys but perhaps useful for us accountants.  Realization for law firms is dropping, down from 92% in ’07 to 83.5% in ’13. While CPAs may wish they hit those realization percentages, that is a shock for big law firms. Two lessons from the article that may be helpful.

First, big firms are still increasing their standard rates 2% or 3% a year. That leaves more room for discounts when needed – a bigger apparent discount off a higher base – jewelry stores do this every minute of the day.  Second, increasing rates and increasing discounts allows for more price discrimination amongst eager/reluctant clients.

Written by Jim Ulvog

January 28, 2014, 8:59 am at 8:59 am

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