Audits

Going concern articles for auditors

FASB has issued ASU 2014-15 which brings going concern consideration into the GAAP literature. Here are three articles that helped me and I think you can learn from as well.

Professional literature

You can find ASU 2014-15 here.

You can find SAS 126 in AU-C section 570 here.

Current going concern rules in SAS literature

4/19/14 – CPA-Scribo –  Audits: Going Concern Issues – From a year ago, here is a great summary of going concern rules in SAS 126. I recommend you check out this post as a refresher on the rules.

New going concern rules in GAAP

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Price cut on print books

I’ve dropped the prices for the print copies of my books available at Amazon, Barnes & Noble, and iTunes store.

Here is what you can find on-line:

tragedy-cover

 Tragedy of Fraud – Insider Trading Edition

Story of Scott London’s fall from regional audit partner at KPMG to prison inmate because of his insider trading.

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More good stuff for auditors – 1/30

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.

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Rationalization in action is frightening to see

It is scary to see the power of rationalization. We humans can exert great effort to persuade ourself that wrong is right. With enough effort, we can persuasively argue that wrong is a positive good, the noble alternative.

It is unsettling to me when I see a client deeply believe that tax or accounting fraud is perfectly legitimate and I am the one who is in the wrong to suggest otherwise.  Worrisome is a watching a friend who believes that hurtful or destructive or nasty or evil behavior is Godly. Even more upsetting is when I catch my brain in full rationalization mode.

No, I’m not about to give any examples from clients, friends, or my life.

Unfortunately, we have a sad public example of rationalization racing at full power (sad pun intended).

Some background on Lance Armstrong’s massive doping schemes

Many public sources report that Lance Armstrong has been found to use performance enhancing drugs for a very long time. He won seven consecutive Tour de France races.

According to Wikipedia, in 2012 he received a life-time world ban on all competitive events in all sports. His seven wins were revoked. He was found to have engaged in sophisticated doping schemes for many years.

In 2013, he admitted massive doping in an interview with Oprah Winfrey. He admitted using a long and specific list of banned substances and did so in each of the 7 Tour de France races.

Rationalization on display

Having set the background, let’s look at an article in The Guardian:  Lance Armstrong: I would probably cheat again in similar circumstances. Thanks to Professor Mike Shaub (twitter @mikeshaub) for pointing out the article.

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Auditors need to be incorporating the new Code of Ethics into audit work that is in planning stage right now

I don’t have time to write a full post, so will just caution auditors that the new Code of Ethics codification went into effect on December 15, 2014. That means it is in play right now for the audit work you are planning. Will apply to engagements in the field as soon as you pack up for the client’s office.

CPA Charles Hall has a very brief into at his blog, CPA-Scribo:  New AICPA Code of Professional Conduct Effective December 15, 2014.

You need to make some changes to your engagement letters, if you haven’t already. Need to do a few other things in terms of documenting threats to independence and take a few steps to make sure you keep your independence.

If you haven’t read through the new rules to figure out the impact on your practice, now would be a really, really good time to do so. That’s a not very subtle hint, by the way, that your workpapers need be a bit different from last year.

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Journalist falling for teen claiming $72M in stock market profits is object lesson for auditors

How many failures in the smell test can you identify in this story, which was published by New York Magazine?

In a few years of trading*, a 17-year old* High School junior has cleared $72 million* in profits from a diverse strategy* of penny stocks*, oil futures, and mid-cap stocks. He owns a BMW and has already rented an apartment in Manhattan that his parents won’t let him live in*. He lives with his parents in the same place they’ve lived for a while*. To validate his story, a fact-checker looked at a* Chase bank statement* that shows a $72M balance*. The stock whiz now says he met with the fact-checker “for about 10 seconds” to view the one statement*.

Update, forgot this part:  After one of the interviews, he was going to an appointment with some guy who wanted to give him* a $150M investment* to start a hedge fund* the day he turns 18*.

The whole thing was a hoax.

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

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 good stuff for auditors – 12/5

A few links and comments of interest to auditors. The corpse of IFRS is looking more like a vampire. There are little muscle twitches, suggesting it isn’t fully dead.

12/3 – Edith Orenstein at FEI Daily – SEC Chief Accountant Has Fourth Alternative on IFRSThe Chief Accountant is considering a fourth option, following the options of 1) surrendering all standard setting authority to IFRS, 2) giving option to everyone to file with IFRS, and 3) ‘condorsement’, aka convergadoption ™ .

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What’s the better description – “Audit” or Limited Review of Financial Statements

A few weeks ago I had the opportunity to interview Sam Antar, previously CFO of crazy Eddie and currently convicted felon. There are several other posts from our discussion.

During our conversation he pointed out that audits are limited in terms of time and are limited in scope. An audit is not a forensic analysis.

He described our current methodology as designed to detect material unintentional errors.

(I would add to that something about looking for material intentional errors that are non collusive or are in the obvious places. Add your own paraphrase of our responsibilities to look for fraud.)

Those limits suggest to him that a better describe of what we do would be: …

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Starting template to develop a Quality Control document for CPA firm. It’s even legit to copy & paste.

Image courtesy of Adobe Stock.
Image courtesy of Adobe Stock.

The AICPA has provided a number of new documents to help firms improve the quality control systems and to start looking at the enhancing audit quality initiative. I’ll list a few of them. It’s easy to copy & paste and at a great price.

Tools to develop a quality-control document

Every CPA firm performing assurance services is required to have a quality-control document. That applies even if you only do comps and reviews. Even if you aren’t going through a system review.

The AICPA has free practice tools to explain the QC standards along with a sample document based on the size of the firm.

You can find the documents on this page.

You can also find a document that is geared to the size of a firm: …

Starting template to develop a Quality Control document for CPA firm. It’s even legit to copy & paste. Read More »