Attestation Update – A&A for CPAs. – Page 17 – Technical stuff for CPAs providing attestation services.

KPMG agrees to $50 million fine from SEC. The details are really bad.

Oh, remember that post about the SEC considering a $50M fine against KPMG? Initial report suggested it was for gaining access to the list of engagements which were going to be inspected by PCAOB.

It is much worse.

The firm is fined for altering workpapers based on the inspection list. In addition, there was a lot of cheating on the tests for CPE courses, including a class required by the SEC.

The SEC says KPMG has agreed to settle and pay $50M.

If you want to read the gory details for yourself, you can do so:

This is for real. Seriously.

By the time you finish reading this post or other reports on the SEC’s action, you may be wondering whether there needs to be an assertion the source of information for this post was neither The Onion nor Babylon Bee.

Reports of setting your own passing score for an ethics test could make you wonder if it is very early April. “Cooperate and graduate” exchanges of test answers with the engagement partner and your audit team makes one wonder whether we have entered some sort of alternate reality.

You may want to glance at the linked documents and verify for yourself they are for real.

I assure you the above documents are from the SEC.gov website.

SEC action

In part II of the administrative action/cease & desist order, KPMG admits the facts described in part III.

Here are some highlights of part III.

First cause of action

The first cause of action by the SEC is the firm obtained the list of engagements which were going to be inspected by PCAOB and then altered workpapers which had not yet hit the lock-down date.

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KPMG agrees to $50 million fine from SEC. The details are really bad.Read More »

KPMG agrees to $50 million fine from SEC. The details are really bad. Read More »

SEC considering a $50M fine against KPMG

Leave a Comment / Audits / Jim Ulvog

It will take a bigger stack of currency than shown above if the SEC follows through with what they are considering. Image courtesy of Adobe Stock.

The Wall Street Journal reported on June 13, 2019 that the SEC is considering a fine of $50,000,000 against the Big 4 firm KPMG for it gaining access to the highly confidential list of audits scheduled for inspection by PCAOB.

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SEC considering a $50M fine against KPMGRead More »

SEC considering a $50M fine against KPMG Read More »

Two convictions for former-KPMG staff gaining access to PCOAB inspection list

Leave a Comment / Audits / Jim Ulvog

Back in March a jury returned convictions for two of the players in the effort to get a list of the audits which were scheduled to be inspected by PCAOB.

(Yeah, yeah, conviction was in March and I’m mentioning it now in June. I’m just a tad bit late to the story but still want to discuss it.)

A senior level former-partner, David Middendorf, was found guilty on 4 of 5 counts. He was the National Managing Partner for Audit Quality and Professional Practice Group, in the firm’s Department of Professional Practice. That means he was the top technician in the national office of top technicians.

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Two convictions for former-KPMG staff gaining access to PCOAB inspection listRead More »

Two convictions for former-KPMG staff gaining access to PCOAB inspection list Read More »

California bill AB 1181 would address valuation of GIK when donor restricts distribution to outside U.S.

Leave a Comment / Accounting / Jim Ulvog

What is the fair value of donated medicine restricted for use outside the U.S.? Image courtesy of Adobe Stock.

The California Assembly has passed and sent to the Senate a bill which would require specific accounting for charities who receive gifts-in-kind which are restricted by the donor for distribution outside the U.S.

For that very specific type of GIK, the bill would require the donation to be recorded at the fair value in the country where the items will be used.

This will particularly affect donated pharmaceuticals, which often have a severely different value in the U.S. compared to values internationally.

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California bill AB 1181 would address valuation of GIK when donor restricts distribution to outside U.S.Read More »

California bill AB 1181 would address valuation of GIK when donor restricts distribution to outside U.S. Read More »

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

Leave a Comment / Audits / Jim Ulvog

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.

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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.

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

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

Memorial Day: gratitude for those who did not return

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.

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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.

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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:

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

Standard mileage rates for 2019

Leave a Comment / Other stuff / Jim Ulvog

The IRS has published the 2019 standard mileage rates. New rate for transportation and reimbursements is 58 cents, which is up from 54.5 cents in 2018. That is an increase of 3.5 cents.

(Cross post from my other blog, Nonprofit Update.)

New rates from the IRS, along with some comments on the impact of TCJA legislation are found in Notice 2019-02: …

Standard mileage rates for 2019Read More »

Standard mileage rates for 2019 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):

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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 »

Been thinking the volume of accounting rules is growing a lot? It isn’t your imagination. Here’s a page count of GAAP.

7 Comments / Accounting / Jim Ulvog

Is this how you’ve been feeling with all the changes in GAAP stacking up on your desk? Image courtesy of Adobe Stock.

Just in case you had been wondering in your idle time how many pages long the Accounting Standards Codification would be in print form, I have the answer.

10,068 pages.

How thick is that if you stacked the five volumes on top of one another?

12.75 inches.

I’m working on a writing project for which it will be convenient to have a hard copy of the ASC, so I ordered a copy. Yipee! It arrived yesterday!

In case it seems like the volume of rules is growing faster than you can keep track, here is a seven-year comparison, looking at the physical size and volume count of the 2017 and 2010 editions:

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Been thinking the volume of accounting rules is growing a lot? It isn’t your imagination. Here’s a page count of GAAP.Read More »

Been thinking the volume of accounting rules is growing a lot? It isn’t your imagination. Here’s a page count of GAAP. Read More »