To prevent an even stronger privacy proposition from appearing on the ballot in the fall, the California legislators rushed through a bill providing strong privacy rights for all California citizens. Companies making lots of money from the ‘net dislike the bill but supported it in order to derail the proposition.
Since the law doesn’t go into effect until 2020, there is plenty of time for the legislators to agree with the inevitable demands from tech companies to water down the bill. Pending the expected vast dilution, the bill provides a few landmark protections for consumers, including:
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.)
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).
Image courtesy of dollarphotoclub before merger with Adobe Stock.
Big news from CBA if the highest level of service you provide clients is a preparation engagement.
First, if you don’t perform compilations, reviews, audits, or other services covered by peer review, you don’t need to get a peer review.
Second, there is a specific CPE requirement: 4 hours in fraud education and 8 hours in prep or A&A.
The following article from the California Board of Accountancy, quoted with permission, provides more detailed explanation. Since it is quoted verbatim, I won’t put quotes around the entire article.
NEW CONTINUING EDUCATION REQUIREMENT FOR PREPARATION ENGAGEMENTS
CPAs who perform preparation engagements as their highest level of service are subject to a new continuing education (CE) requirement.
Don’t send one of these to CBA unnecessarily. Image courtesy of Adobe Stock.
These must be the preferred ways CPAs pick to get in trouble with the regulators because the board of accountancy says these are the three most common reasons they issue monetary penalties.
What are the three most popular ways to draw a fine from CBA?
Don’t get minimum of 20 hours each year of your license term or don’t get 12 of those hours in technical topics.
Ignore a formal inquiry from CBA.
Don’t submit that Peer Review Reporting Form with your license renewal.
For more detail, check out the following article, quoted with permission, from the California Board of Accountancy. Since it is quoted verbatim, I won’t put quotes around the entire article.
IT’S EASY TO AVOID CBA CITATIONS
To help increase awareness of CBA requirements and prevent licensees from receiving a citation, below are the top three violations that led to a citation in the previous fiscal year. Citations are posted on the CBA website and may include an administrative fine of $100 to $5,000.
The firms that make up the following list were not traveling on the above highway. Image courtesy of Adobe Stock.
Starting with the newest Updatereport 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:
Photo at Wells Fargo San Diego museum in January 2018 by James Ulvog.
The Federal Reserve will prohibit Wells Fargo from growing in size past its $1.95 trillion asset base in place as of 12/31/17. That means any gains from new deposits must be offset by selling off other assets and liquidating some liabilities.
In addition, the bank will be replacing three directors by April who previously announced their retirement and replacing another director by December 2018.
For a summary of the accounting rules released in 2017 and the most significant new rules from 2016, 2015, and 2014, check out A Closer Look: Discussion and Analysis of Current Accounting and Audit Issues.
CCH made this update available for free to people on their mailing list. I received permission from my editor at CCH to make it available on my blog.
Click here to download the 54 page newsletter. CCH does not have a separate landing page for the document, so that link automatically downloads the newsletter. UPDATE: If link didn’t work for you, please try again. I reloaded the link and it is working now.
For each of the accounting rules covered, the newsletter provides:
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 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.
You might learn a few things from a list of Forty Mistakes Auditors Make. If you can identify a few ways to improve your audit approach you could save time, improve the quality of your audit, and maybe reduce your risk.
Lots of auditors are in the midst of planning their year-end audits and reviews. Now would be a really good time to think about how to do better, more efficient work.
Writing at CPA Scribo, my friend Charles Hall outlines a number of goofs made by auditors. I’ll list a few tidbits in order to encourage you to read and ponder the whole list:
There is a six page listing of common deficiencies identified during peer reviews of complexion and review engagements described in the AICPA’s new risk alert Developments in Preparation, compilation, and Review Engagements – 2017/2018.
Here are a few paraphrased highlights of the deficiencies. I will list items that I perceive are more serious or more pervasive.
You might consider reading through the full list and mentally comparing it to how you perform review and compilation engagements to see if there’s something you are missing.
Staffing and funding for the IRS division that oversees tax exempt organizations has fallen dramatically in the last six years or so.
According to a behind-the-paywall article at the Washington Post, the budget for the Exempt Organization division has dropped from $102M to $82M between 2011 and FY 2017. That is a $20M decline, or 19.6%.
For the same years, staffing has declined from 889 to 642, according to the article. That is a decline of 247 positions, or 27.8%.
(Cross-posted from my other blog, Nonprofit Update, because this issue is of interest to most CPAs.)
