Archive for the ‘Audits’ Category
I thought IFRS in the US was dead. In case you didn’t know, I have a fairly strong opinion on the issue.
A presenter at the CalCPA’s Accounting and Auditing Conference on April 25, 2017 had the following comment on IFRS at the end of the presentation:
Death, taxes, cockroaches, and IFRS aren’t going away.
My immediate thought:
Unfortunately, that now seems to be true.
IFRS is baaaack
He perceives the pendulum of discussion on IFRS is swinging back to the topic being on the table.
His comments consistently contained the inference that IFRS is one body of knowledge, consistent in its application in every country across the planet that has adopted the rules.
I’m expecting to hear a lot more, most likely after PCAOB and SEC finish their investigation. If I read this situation correctly, and if public reports are correct, there will be sanctions from SEC against some of the KPMG staff. At that point, the SEC public documents will tell us a lot more.
While we wait, here are two articles that give some general background.
4/17/17 – Francine McKenna at re:The Auditors – KPMG takes its turn with a Big 4-sized scandal – If you’ve been looking for an article with a long time horizon to survey the assorted scandals in the Big 4 world, this post will give you the deep background you want.
Leak from PCAOB to KPMG
Post describes the current information that is public on the leak of inspection engagements from someone at PCAOB to someone at KPMG. Article illustrates there still is not a lot visible in the public realm to answer all the questions that come to mind.
Ms. McKenna quotes my comment earlier on the PCAOB-KPMG leak feeling to me like a red flag of something deeper. She agrees with me.
Each firm has their own round of fiascos
All the firms have had their turn of embarrassing publicity, often with fines or undisclosed settlements.
A minor update on the leak from a now-former PCAOB staffer to a now-former KPMG staffer giving advance notice of audits selected for inspection. Also, many questions come to my mind after thinking about this situation.
Previously mentioned this fiasco yesterday.
CFO.com provides some clarifying info from KPMG’s executive director of media relations and corporate communications: KPMG Replaces Audit Chair in Wake of PCAOB leaks.
The KPMG representative says that KPMG discovered the issue and notified the SEC and PCAOB.
Most significant piece of new information is that the six people who left the firm were fired.
They did not resign.
Why is this significant, at least to me? In the initial reports, I saw verbs used indicating all of the following possibilities for the partner’s departure. They may have:
- resigned (which means sorta’ kinda’ voluntary terminations), or
- were fired (which means the firm unilaterally terminated them), or
- departed (which doesn’t addressed which party made the termination decision; in other words could have been a summary firing, or truly voluntary, or under the proverbial threat of you-can-either-resign-or-I’ll-personally-throw-you-out-the-window).
At first read, I did not analyze which of the above options actually was in play. I put together all the reports I read and assumed (you know what that means) these were all forced resignations, as in “I think it’s time for you to resign.”
Other comments by the PR person confusing me are statements that the fireable offenses were possessing the leaked information or knowing others knew about it.
There is as much missing from reporting on this story as has already been made public.
Here is what I can figure out:
An employee of PCAOB leaked to someone at KPMG a list of audit engagements that were going to be inspected. Recipient of the leaked info was previously an employee at PCAOB.
Lots of stuff we don’t know happened next.
When someone told senior leadership at KPMG about this back in February, KPMG took several steps. They hired external legal staff to investigate, notified the PCAOB of the leaked info, and then fired 6 people.
Amongst the fired staff are
- two named partners, including the Vice Chair of Audit (who was in charge of all audit work in the US firm) and the national managing partner for audit quality and professional practice
- three other unnamed partners
- one other person, whose job level and responsibilities were not identified.
The leaker at PCAOB has resigned.
What is missing from the reporting?
What happened inside KPMG between the leak and the firings is not visible in the few articles I’ve found on the incident.
A current trial alleging arson and insurance fraud provides CPAs an educational read on the fraud triangle.
Consider these articles if you want more background or to see my sources:
- 3/20/17 – MarketWatch – What drives people to arson? Falling house prices
- 1/27/17 – WLWT – Middletown man’s electronic heart monitor leads to his arrest
- 2/8/17 – Washington Post – A man detailed his escape from a burning house. His pacemaker told police a different story.
A fellow woke to fire in his home, packed a few belongings, called 911, tossed a couple suitcases out the window he broke with his cane, then climbed out the window to save his life.
That’s what he told fire officials and his insurance company.
The fully involved fire, which from a photo looks to have destroyed the home, caused around $400,000 of damages.
Technology can rat you out
His pacemaker told a different story.
In the short-term, looks like a shortage is emerging for experience accountants. In the longer term, the massive change surrounding us means we need to keep learning and adapting.
As CPAs, we need to keep learning new skills and focus on things computers can’t do.
1/30/17 – Bill Sheridan at Business Learning Institute of MACPA – Want to beat the machines? Learn to do what they can’t do – Here is a way to think about automation that you might be able to wrap your brain around – How will you adapt then 30% of the work you do is automated, done faster, quicker, cheaper, and more accurately than you can do? Not 99% of what you do, not 10%, but 30%?
I can’t get my arms around audit or tax or consulting completely going away. I just can’t picture that. However, I can imagine 30% or 40% of my work as an auditor becoming completely automated. Actually, I sort of like that idea.
Computers don’t do well at applying professional judgment, courage, empathy, flexibility, and reacting to body language.
Point of article is learn to do those things better.
1/31/17 – Bill Sheridan at Business Learning Institute of MACPA – Change is a choice. So are relevance … and your future – Each of us has a choice. We can keep doing what we are doing. Or we can decide to change and grow and learn new things.
The accelerating pace of change doesn’t slow down merely because I have multiple audits in progress plus more that just started. Here are a few articles to help keep all of us up to date on two newly effective standards:
For a long time the professional requirements for addressing going concern issues have been located in the audit literature. Yeah, the accounting requirement was in the audit standards. There has been an effort for several years to this guidance out of the SASs and into GAAP. Two articles show the substantial progress:
11/8/16 – Charles Hall at CPA-Scribo – It’s Time to Apply FASB’s New Going Concern Standard – ASU 2014-15 creates a requirement in GAAP for management to assess whether there are conditions or events which raise substantial doubt about ability to continue as going concern.
This is effective for financial statements ending on or after December 15, 2016. Translation: 12/31/16 financial statements. That would be the ones you’re auditing or reviewing or compiling at the moment.
If you haven’t tuned into this new requirement, check out Mr. Hall’s article before you download the ASU for study. Hint: the new requirements on management will seem remarkably familiar.
In case you hadn’t thought about it, having a GAAP-based going concern requirement placed on management means that there is now a specific need to address going concern in a review or comp.
2/22/17 – Accounting Today – AICPA changes going concern audit standard – Now that the going concern requirements are in GAAP, the ASB has modified the rules in the audit literature.