Audits

If auditors won’t audit, mandatory rotation won’t help. Part 1

6 Comments / Audits /

I read an unsettling post by Tom Selling, “Thinking, Fast and Slow” about Auditing, which made an interesting argument in favor of auditor rotation.  Essence of the concept deals with the halo effect.  His post got me to thinking.  Mentioned my discomfort here.

In a sentence, the halo effect in the audit context is unconsciously concluding that management is right this time because they were right so many times before and therefore the halo effect biases auditor’s judgment so severely that mandatory audit rotation in needed to get good audits.

I’ve read a large portion of the book and have resolved my discomfort.

If auditors won’t audit, in other words if they don’t take their work seriously and try to do a good job, mandatory rotation won’t change anything. Neither will disclosing the name of the partner, nor disclosing the names of the audit team, nor increasing penalties from the SEC, nor increasing auditor liability.

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If auditors won’t audit, mandatory rotation won’t help. Part 1Read More »

If auditors won’t audit, mandatory rotation won’t help. Part 1 Read More »

Primer for CPAs on testing the functional allocation

Leave a Comment / Accounting, Audits, Books you might enjoy /

I discuss the e-book Lies, White Lies, and Accounting Practices; Why nonprofit overhead doesn’t mean what you think it means by Saundra Schimmelpfennig at my other blog, Nonprofit Update.

If you are a CPA working with NPOs, check out my description of the book in my post, Q: Are overhead ratios the perfect measure of NPO efficiency and effectiveness?   You ought to get the book.

I suggest you buy a copy of the book for all of your staff who work with NPOs. Would be a cheap and fast way to provide some education on testing the functional allocation.

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Primer for CPAs on testing the functional allocationRead More »

Primer for CPAs on testing the functional allocation Read More »

Investigators for Olympus aren’t pointing fingers at KPMG and E&Y

Leave a Comment / Audits, Fraud /

An investigative panel set up by Olympus released a report saying the external auditors couldn’t have found the fraud. 

The panel also blamed five internal auditors for helping with the cover up.  Olympus has sued the five.

An Internet search today indicates there are 270 articles discussing this. Here are a few you can browse:

One panel of investigators appointed by Olympus pointed fingers at the external auditors. I discussed this report in my guest post at re: The Auditors.

In contrast, this new panel isn’t pointing fingers at the external auditors.  They are blaming the internal auditors for the costs incurred to investigate the cover up.

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Investigators for Olympus aren’t pointing fingers at KPMG and E&YRead More »

Investigators for Olympus aren’t pointing fingers at KPMG and E&Y Read More »

Addition to your client continuance checklist – use ideas from seven habits of spectacularly unsuccessful executives

Leave a Comment / Audits, Compilations & reviews /

Here’s an idea for something to add to your client continuance checklist.

Boil down the major points of The seven habits of spectacularly unsuccessful executives, by Sidney Finkelstein, which he wrote in 2004.  Turn his analysis into a list of major warning signs that suggest you don’t want to keep working with a client.

I’ve just started reading the full article.  Here is a summary, provided by David Albrecht, in his post, Arrogance and Social Media. …

Addition to your client continuance checklist – use ideas from seven habits of spectacularly unsuccessful executivesRead More »

Addition to your client continuance checklist – use ideas from seven habits of spectacularly unsuccessful executives Read More »

Our responsibility as CPAs is to our clients, the shareholders

2 Comments / Audits, Compilations & reviews, Pondering /

Francine McKenna reposts one of her favorite discussions on the responsibility of CPAs: – Madoff, MLK, Buddha And Elusive Nature of Self-Interest

The core question is where do we place our ultimate focus and loyalty?

Management who hired us?  The CFO who could get us fired?  The board of directors? Senior partners of our firm?

No, no, no, and no.

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Our responsibility as CPAs is to our clients, the shareholdersRead More »

Our responsibility as CPAs is to our clients, the shareholders Read More »

Before you wish for the feds to take over public accounting…

Leave a Comment / Audits /

Sometimes I see suggestions that the solution to the issues in our current model of CPAs auditing their clients is to have the government take over the auditing role.

Before you start wishing for that too hard, let me mention just three things I’ve noticed of late: …

Before you wish for the feds to take over public accounting…Read More »

Before you wish for the feds to take over public accounting… Read More »

Reporting restatements to the California Board of Accountancy

Leave a Comment / Audits, Compilations & reviews /

If you report on financial statements with a restatement of prior year numbers, you may have to notify the CBA.

The board has a very brief summary of the three circumstances when you have to notify them in the current issue of their newsletter, Update.  You can see the short article on page 10 of this issue.

Here is my really fast summary –

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Reporting restatements to the California Board of AccountancyRead More »

Reporting restatements to the California Board of Accountancy Read More »

My guest post at re:The Auditors on accounting for the Olympus fraud

2 Comments / Accounting, Audits, Fraud /

Francine McKenna asked me to combine my short comments on the Olympus fraud into a guest post on her blog.

I’m quite happy to announce my revised, expanded, and edited discussion is available. You can read the full thing at How Do You Hide A Multibillion Dollar Loss? Accounting For The Olympus Fraud

Many thanks to Francine for the wonderful opportunity to speak to a big audience.

My guest post at re:The Auditors on accounting for the Olympus fraud Read More »

What’s going on in the big firms? Part IV, or, what’s the turning radius of a ship or large CPA firm?

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What is the turning radius of a fully loaded oil tanker?

It’s measured in miles.

What does that have to do with accounting?  The common question is how fast can you change direction, whether on a huge ship or a huge organization?  I think there are some similarities.

With a fully loaded supertanker there is a tremendous amount of weight, which creates huge inertia when you’re under way. Turn the rudder as far as you want, it still takes time to change direction.  Same description applies to a large CPA firm.

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What’s going on in the big firms? Part IV, or, what’s the turning radius of a ship or large CPA firm?Read More »

What’s going on in the big firms? Part IV, or, what’s the turning radius of a ship or large CPA firm? Read More »

Olympus releases restated earnings- an auditor’s observation

Leave a Comment / Accounting, Audits, Fraud /

Olympus had a hard deadline of Wednesday to file its second quarter earnings report or face automatic delisting from the stock exchange.  It met the deadline.

Along with the quarterly report, Olympus announced restated financial statements for the last five years.

Here are a few tidbits from today’s news reports of interest to us auditors.

Size of the fraud hasn’t change – currently at $1.58B.

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Olympus releases restated earnings- an auditor’s observationRead More »

Olympus releases restated earnings- an auditor’s observation Read More »

What’s going on in the big firms? Part III. – Complexity affects small firms too.

1 Comment / Audits /

In my previous post, I suggested that maybe the problems affecting the big firms also affect us small firms.

I suggest that time pressures and complexity are major drivers for the issues we see in the PCAOB inspection report that found deficiencies in 12 of 52 engagements at KPMG and in 28 of 71 engagements at PwC.

Previously touched on time pressures.

On to complexity.

Here is a hint of what complexity looks like, from Francine McKenna’s post that I discussed earlier, At Deloitte, More Pain Before Any Quality Gain:

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What’s going on in the big firms? Part III. – Complexity affects small firms too.Read More »

What’s going on in the big firms? Part III. – Complexity affects small firms too. Read More »

What’s going on in the big firms? Part II. – Time pressures affect small firms too.

1 Comment / Audits /

Background – Previous post mentioned the PCAOB found deficiencies in 12 of 52 engagements at KPMG and in 28 of 71 engagements at PwC.  Deloitte is publicly arguing with PCAOB.

Two questions:

  1. What is the underlying pressure causing the high number of deficiencies and some substandard engagements?
  2. Why does that matter to those of us in small firms?

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What’s going on in the big firms? Part II. – Time pressures affect small firms too.Read More »

What’s going on in the big firms? Part II. – Time pressures affect small firms too. Read More »