Audits – Page 5 – Attestation Update

Exposure drafts propose change to definition of materiality for audit and attestation standards.

The Auditing Standards Board has issued exposure drafts to subtly change the definition of materiality in the SAS and SSAE literature. Both exposure drafts are titled Amendments to the description of the concept of materility and can be found here.

A Journal of Accountancy article describes the proposed changes: ASB seeks alignment of materiality definition.

The exposure draft gives a four page history of how the definition of materiality has evolved over the last several decades.

What the proposed changes would do is shift the definition of materiality in the audit and attestsation literate to match what is used by the US courts, PCAOB, SEC, and FASB. Currently the definition is aligned with IASB and IAASB.

I will quote portions of one paragraph in the exposure draft and make some comments.

…

Exposure drafts propose change to definition of materiality for audit and attestation standards.Read More »

Exposure drafts propose change to definition of materiality for audit and attestation standards. Read More »

CPA sanctioned by California Attorney General over audit of charity

2 Comments / Accounting, Audits / Jim Ulvog

The California AG negotiated a settlement with a charity for their alleged overvaluation of medical GIK. I say alleged because the charity, three present or former board members, the charity’s insurance company, and the external auditor all deny in the settlement they did anything wrong.

The alleged scheme, according to the AG, was the charity used two other charities, which it formed, to buy medicine in the Netherlands and then donate it back to the ‘parent’, which then recognized GIK at US prices.

The AG asserts that over the course of 25 or more transactions, the purchase of about $225,000 of medicine by the two controlled charities generated gift-in-kind revenue of about $34,900,000 in the sanctioned charity.

Of note for readers of this blog is that the CPA providing an external audit was sanctioned as part of the negotiated settlement. She audited the charity and signed its 990s. She also audited one of the controlled charities and signed their 990s.

…

CPA sanctioned by California Attorney General over audit of charityRead More »

CPA sanctioned by California Attorney General over audit of charity Read More »

News flash for CPAs: auditor reports will be changing again for 12/31/20 audits (SAS 134, 135)

Leave a Comment / Audits / Jim Ulvog

Reaction of many CPAs to the accelerating rate of change facing the profession. Image courtesy of Adobe Stock.

On May 8, 2019, the Auditing Standards Board of the AICPA issued two new SASs:

The AICPA press release is here.

SAS 135 is only 36 pages long, but SAS 134 at 261 pages in length is a bruiser.

Essentially, 134 will replace the audit literature that discusses the auditor’s report (AU-C 700), modification of the audit report (AU-C 705), and emphasis-of-matter sections (AU-C 706). Wording and format of audit reports and entire range of modifications will all be changing.

Effective date is years ending on or after December 15, 2020. That means these will first apply for 12/31/20 audits performed in late winter/spring of 2021.

Seems like a long time in the future, but might be worth setting some time aside to start sorting through the changes.

News flash for CPAs: auditor reports will be changing again for 12/31/20 audits (SAS 134, 135) Read More »

Trial of former partner at KPMG starts today

Leave a Comment / Audits / Jim Ulvog

One former partner at KPMG and a former PCAOB staffer get their day in court today, February 11, 2019. Actually, it will be about four weeks in court, according to Michael Rapoport of the Wall Street Journal: KPMG Ex-Partner Goes on Trial in ‘Steal the Exam’ Scandal.

David Middendorf was a KPMG partner until April 2017. He was National Managing Partner for Audit Quality and Professional Practice Group, in the Department of Professional Practice (DPP). He reported to the Vice Chair of Audit.

Jeffrey Wada was a PCAOB Inspections Leader from February 2012 through February 2017.

Both are in court today defending themselves against charges they received and leaked, respectively, the list of KPMG audits which were scheduled for inspection by PCAOB.

…

Trial of former partner at KPMG starts todayRead More »

Trial of former partner at KPMG starts today Read More »

Update on KPMG gaining access to PCAOB inspection schedule. Possible impact on inspection results.

Leave a Comment / Audits / Jim Ulvog

….what might need improving at KPMG based on PCAOB reports. Image courtesy of Adobe Stock

The PCAOB released results of the inspections during the 2017 cycle. The results are not pretty. In addition, PCAOB released previously confidential comments from the 2015 report.

Michael Rapoport has the details in the Wall Street Journal on January 25, 2019: KPMG Gets Poor Marks From Audit Regulator / Regulator unseals sharp criticism of Big Four accounting firm’s quality during period spanning leak scandal.

In a painful phrase, the article quotes prosecutors as labeling this as a

“steal the exam” scheme.

In the 2016 audit cycle, PCAOB replaced 11 engagements that had already been reviewed with 10 others. Of the 11 replaced, 3 had significant deficiencies. Of the 10 replacements, 9 had deficiencies.

…

Update on KPMG gaining access to PCAOB inspection schedule. Possible impact on inspection results.Read More »

Update on KPMG gaining access to PCAOB inspection schedule. Possible impact on inspection results. Read More »

Increases in audit fees during 2018 for work on 2017 financials

Leave a Comment / Audits / Jim Ulvog

Average increases in fees for audits in 2018 for work on 2017 financial statements:

+2.5% – public companies
+3.2% – private companies
Flat – nonprofit organizations

Article says a different survey of 6,340 public companies reported a median increase of 5.7% for audits of 2017 financials.

For comparison, article says median increases in 2017 for work on 2016 financials were:

…

Increases in audit fees during 2018 for work on 2017 financialsRead More »

Increases in audit fees during 2018 for work on 2017 financials Read More »

More disciplinary actions from California Board of Accountancy

Leave a Comment / Audits, Compilations & reviews, Peer Review / Jim Ulvog

The Update #87 newsletter from California Board of Accountancy for Summer/Fall 2018 lists 38 disciplinary actions, by my count.

You can read my previous posts on CBA actions by clicking on this tag.

Here is my tally of license revocations, surrendered licenses, and revocations with stay (there are no suspensions or stayed suspensions this time around):

…

More disciplinary actions from California Board of AccountancyRead More »

More disciplinary actions from California Board of Accountancy Read More »

List of key players in KPMG fiasco over leaked PCAOB inspection lists

3 Comments / Audits / Jim Ulvog

Three accountants in this story entered the above building innocent and left as a felon. Image courtesy of Adobe Stock.

10/19/20 update: This list is getting cumbersome to update and read. It has been reformatted and posted here. This post will not be updated after today. Check the newer post for all future updates.

Sometimes you gotta’ have a scorecard to keep track of the players and the story. After a former partner pled guilty this week in the fiasco at KPMG over leaking of PCAOB inspection targets, I had to sort out again who was who.

So, I sketched out a list of the players and a bit of info about each.

Will update this list as the criminal cases move forward.

The roster of players and their status: …

List of key players in KPMG fiasco over leaked PCAOB inspection listsRead More »

List of key players in KPMG fiasco over leaked PCAOB inspection lists Read More »

How to get more of the messy details on disciplinary actions by the California Board of Accountancy

Leave a Comment / Audits, Compilations & reviews / Jim Ulvog

A colleague asked me a question on how to find out more details on the disciplinary actions taken by the CBA. Let me give you the answer too.

To look up details, you can go to the newsletter mentioned. For Winter 2018 that would be here.

…

How to get more of the messy details on disciplinary actions by the California Board of AccountancyRead More »

How to get more of the messy details on disciplinary actions by the California Board of Accountancy Read More »

Summary of disciplinary actions from California Board of Accountancy, Winter 2018

Leave a Comment / Audits, Compilations & reviews, Peer Review / Jim Ulvog

What you will be doing if you ignore professional standards and then get caught messing up your audits and reviews, although the amount won’t be quite as large. Image courtesy of Adobe Stock.

The new Update newsletter from the California Board of Accountancy goes back to providing details on disciplinary actions. The Winter 2018 edition (#86) takes 20 pages to describe the 24 actions. The previous Update provided far less detail, which generated lots of feedback to the board, so the newsletter will again give the ugly details for the causes for discipline.

Update 11/30/18: Thanks to CBA for listing the messy details on what CPAs are doing to earn their consequences.

Three things jump out at me from the current list of discipline.

First, every action comes with a substantial financial penalty in the form of reimbursing the CBA for their investigative costs.

Second, just about every CPA that got in trouble for audit or review problems was given a ban from performing attestation work until some time in the future when the firm requests and receives permission from CBA to again perform such work.

Third, several CPAs received a suspension from their CPA practice. This means the individual may not perform any actions which would otherwise require a license. I think that means the firm halts all their attestation work and unless also holding an enrolled agent credential ceases their tax compliance work.

Here is my summary of the causes of discipline for the license surrenders and the stayed revocations:

…

Summary of disciplinary actions from California Board of Accountancy, Winter 2018Read More »

Summary of disciplinary actions from California Board of Accountancy, Winter 2018 Read More »

2018 nonprofit risk alert is available. New edition adds discussion on valuation of GIK as rebuttal to California AG.

Leave a Comment / Accounting, Audits / Jim Ulvog

Cover of 2018 NFP risk alert, used under fair use since I’m recommending you buy the document.

The AICPA has released the 2018 edition of Not-for-Profit Entities Industry Developments.

If you are a CPA serving the not-for-profit community, you need to read this document each year. It provides a survey of the accounting and auditing issues affecting the nonprofit world.

If you are an auditor, there are several other risk alerts you ought to be reading every year.

(Cross-posted from my other blog, Nonprofit Update, since this information is useful for many CPAs.)

If you are working for a nonprofit, these alerts would give you a good survey of accounting issues in general and the audit issues your CPA will be dealing with this year.

Valuation of Gifts in Kind

Of particular interest are new comments responsive to the challenge from the California AG over valuation of GIK. The 2017 and 2016 editions had minimal comments on GIK.

The 2018 edition has a new section, Gifts-in-Kind: Reporting Contributions of Nonfinancial Assets, in paragraphs .53 through .57, which describes the AICPA’s interpretation of GAAP.

Years after the mebendazole issue has faded away, the second bullet point of paragraph .56 says that when GIK is sourced outside the U.S. and is not approved for distribution in the U.S., the meds should be valued at international prices. (If you have been following this issue for years, you realize the concession made by that comment.)

…

2018 nonprofit risk alert is available. New edition adds discussion on valuation of GIK as rebuttal to California AG.Read More »

2018 nonprofit risk alert is available. New edition adds discussion on valuation of GIK as rebuttal to California AG. Read More »

Accounting for donated medicine drawing regulatory attention: California A.G. files 3 cease and desist orders.

Leave a Comment / Accounting, Audits / Jim Ulvog

The California Attorney General has taken exception to the valuation of donated medicine by three large charities.

In March 2018 MAP International, Food for the Poor, and Catholic Medical Mission Board were served with cease and desist orders insisting the charities cease using their claims of extremely high program service percentages. The AG also seeks to revoke charitable registration status in the state for MAP and FftP. The cease and desist orders seek to impose substantial fines on the charities.

The AG also claims that FftP incorrectly applied joint cost allocation.

The filed actions alleged that financial reporting for the years 2012 through 2015 is incorrect. This would include the audited financial statements, 990s, and RRF-1s (for MAP and FftP).

…

Accounting for donated medicine drawing regulatory attention: California A.G. files 3 cease and desist orders.Read More »

Accounting for donated medicine drawing regulatory attention: California A.G. files 3 cease and desist orders. Read More »

Another round of disciplinary actions from California Board of Accountancy

Leave a Comment / Audits, Compilations & reviews / Jim Ulvog

The firms that make up the following list were not traveling on the above highway. Image courtesy of Adobe Stock.

Starting with the newest Update report for Fall 2017 (#85), the California Board of Accountancy has stopped listing the underlying problem leading to disciplinary action. This means it only took 16 pages to list the 44 actions reported currently. It also seems the CBA is listing actions against firms and the practitioner together.

This means the cringe inducing details are not immediately visible, even though the full disciplinary reports are public records and publicly available. I didn’t bother to take the time to research the reports.

I have tallied the current batch of discipline cases. Underlying problem is inferred by me based on the comments in the newsletter. I haven’t looked up any of the cases or looked up the reg sections cited for discipline. So, with those caveats, here are my inferences of the current disciplinary actions:

…

Another round of disciplinary actions from California Board of AccountancyRead More »

Another round of disciplinary actions from California Board of Accountancy Read More »

Recap of indictments for KPMG inspection document fiasco

Leave a Comment / Audits / Jim Ulvog

For a year we have known of a fiasco at KPMG in which the firm obtained a list of PCAOB’s plans for inspecting KPMG audit workpapers. That information was floated around at the senior levels of the firm. Multiple people were fired.

This week, the Department of Justice unsealed indictments against four former KPMG employees and one former PCAOB employee.

Let’s dive into the details.

Players

…

Recap of indictments for KPMG inspection document fiascoRead More »

Recap of indictments for KPMG inspection document fiasco Read More »

Common deficiencies in audit engagements

Leave a Comment / Audits / Jim Ulvog

Let’s look at an eight point list of common deficiencies in audits for a quick check of the quality of our engagements. Often times those lists of common deficiencies run for pages and pages, essentially covering just about every major component of an audit. Those kinds of run-on lists don’t really help.

The AICPA’s Audit Risk Alert – General Accounting and Auditing Developments – 2017/18 provides a usable list of eight most common deficiencies identified in the recent peer reviews. Pondering this list provides a good way to do a self-check of your engagements.

Here is my paraphrase of the eight points:

Incorrect dating of the auditor’s report. The report date needs to match the release date which should be after the date all the documentation has been reviewed, the financial statements been prepared, and management has taken responsibility for the financial statements. The risk alert refers to AU-C 700.41.

Inadequate documentation of sampling methodology. AU-C 530 explains how to perform a sample. The methodology must be documented or the reviewer won’t be able to understand why the audit evidence is sufficient.

Insufficient audit documentation. …

Common deficiencies in audit engagementsRead More »

Common deficiencies in audit engagements Read More »