Attestation Update – A&A for CPAs

Technical stuff for CPAs providing attestation services

More good stuff for auditors – 1/30

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Here are a few more articles of interest to auditors. Fragility of the Big 4, big/little GAAP, brain stretcher on revenue recognition when oil prices have collapsed.

1/28 – Clifton Larson Allen – CLA Talk Video: FASB to Simplify Nonprofit Financial Statements – Discussion of some downsides to the expected revisions to NPO accounting.

Presenter is skeptical whether some of the changes will be an improvement. For example, required liquidity information that will normally be stale by the time the financials are released doesn’t seem to be very useful.

1/26 – Accounting Web – Clarified Auditing Standards: Audit Documentation (Redrafted) – Article by Larry Perry summarizes the redrafted SAS on audit documentation, found in AU-C Section 230. He has a fun paraphrase of the documentation requirements which I will further paraphrase: an experienced auditor has to be able to understand from the workpapers what you did, what you found, and what you did about it. Also, that you followed the professional requirements. Check out the article for a refresher on documentation requirements.

Hint: This would be a great article to bookmark for future reference. If you haven’t started using Evernote, now would be a great time to start.

1/6 – Re:Balance – The Financial Fragility of the Big Four Accounting Firms – Updating the “Tipping Point – Very unsettling analysis of the size judgment that could take out another of the Big 4. What I’ve not thought about before is not the size judgment that would sink one of the firms because they couldn’t settle up. Actually, the tipping point would where the audit partners start abandoning the firm because they see their capital and income and reputation about to sink. That is a smaller amount that the hit in pure dollar terms it would take to sink a firm. Mr. Peterson estimates it is as low at $900M to tip a firm into collapse.

In the era of multibillion dollar settlements in the banking world, the possibility of a billion dollar judgment against an accounting firm is no longer an unbelievable idea.

Another part of the discussion is whether a four-to-three shrinkage would be survivable. First issue is independence rules, national regulation, and sundry other issues that might make it essentially impossible for some companies to hire a replacement firm. Cascading disaster could come from partners at other firms bailing out if they lose confidence their firm would survive the resulting financial pressure and political/regulatory exploitation of the turmoil.

A worthwhile if depressing read so you can at least think for a moment about the severe risk in the current system.

1/9 – Edith Orenstein at LinkedIn – Is Big GAAP – Little GAAP Still a Big Deal – Check out the article for a more conceptual discussion of the big Gaap / little GAAP issue. Focus is on whether the PCC options are creating a divide in GAAP and whether that is a destabilizing thing.

1/14 – The Accounting Onion – Oil Stocks are Taking a Beating – But in 10-Ks, Not so Much – For a really deep read on revenue recognition issues, check out the history of the approaches used in the oil and gas industry. Be forewarned: if you read to the end of the article thinking as you go, your brain will hurt.

Here’s how my simple brain boils down the issue: Should all the oil you will pump out of the ground in the next two decades be valued at npv using today’s spot price or the average price over the past 12 months?

I think the answer ought to be none of the above, but I can’t provide a conceptual reason and I don’t have a clue what the alternative might be.

Here’s another illustrative leap for me: With either answer, a large O&G company with a fiscal year of 3/31/15 might have negative gross revenue for the year. Prices have fallen so far there might be a negative number on the top line.

1/22 – Business Insider – 50 Popular Business Books Summarized in One Sentence Each – Main focus of 50 books boiled down to one sentence. Article suggests this would be a good reading list for people in the business world. I agree.

Written by Jim Ulvog

January 30, 2015, 9:41 am at 9:41 am

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