audit methodology – Page 3 – Attestation Update

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

Leave a Comment / Accounting, Audits / By 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).

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Common deficiencies in audit engagements

What can you learn from a list of common auditor mistakes?

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

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:

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A Halloween costume that would make any CPA pass out from fright – an auditor performing one pension plan audit

Various thoughts from continuing education classes this year, part 3. Not so good news on audit and peer review quality.

Leave a Comment / Accounting, Audits, Peer Review / By Jim Ulvog

The road we CPAs need to be on, but not all of us are…
Image courtesy of Adobe Stock.

As I’ve mentioned here and here, I have reread my notes from several continuing education classes this year. Thought I would share a variety of stray ideas.

Probably need to note again that I have not gone back and read the original pronouncements supporting each idea and therefore I do not have a specific citation for you. (Reading three of the documents is the next step for my writing project.)

(Cross-posted from my other blog, Nonprofit Update.)

I should probably throw in a disclaimer. All of the comments I’m mentioning were the opinion of the presenter, not the agency from whom the person was drawing a paycheck. That is why I’m not mentioning the names of the presenters, or even the CPE event. In addition, the rephrasing of their comments is my interpretation, not their words.

Here are some tidbits you might enjoy:

More interest in Financial Reporting Framework for Small- and Medium-sized Entities (FRF-SME)?

The FRF-SME framework is a non-GAAP alternative to GAAP. It is dramatically less complicated with the promise it will not be revised more often every three years.

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Another overview of blockchain technology; time to start figuring out this stuff.

Leave a Comment / Accounting, Pondering / By Jim Ulvog

“Buzzword Bingo: Blockchain” by planeta is licensed under CC BY-SA 2.0

Sure does look like this blockchain technology is going to be a big deal. Might be time to start getting our minds wrapped around the concept.

For starters, check out this short overview:

[youtube=https://youtu.be/6WG7D47tGb0]

For a bit more detail:

8/4/17 – Bill Sheridan at Business Learning Institute – Block chain might remake accounting. The opportunities are huge. – Introductory article is one of the better overviews I have read. It introduces the video shown above.

One sentence description of Block chain, quoting from the article:

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Brain stretching accounting articles for CPAs

Leave a Comment / Accounting, Audits / By Jim Ulvog

Image courtesy of Dollar Photo Club before their merger into Adobe Stock.

Here are a few articles to stretch your brain when you are ready for some mental exercise:

Is the double-entry accounting system broken?
What is the recidivism rate for white-collar criminals and how could that affect my audits?
What possible changes are on the horizon for the audit opinion?

5/17/17 – Tom Selling at The Accounting Onion – Double-Entry Accounting and Modern Times – As a real brain stretcher, consider whether our double-entry accounting system is fundamentally broken.

Work with me a minute while I highlight and summarize a few ideas from the article.

A basic concept of double-entry accounting is that debits on the left side of the balance sheet represent all the assets of the entity. This includes all of the resources that are available for the entity to use in order to make money and all the assets against which creditors have a claim.

On the credit side, liabilities represent all of the claims against the organization. The equity section represents the value that belongs to the owners.

Prof. Selling points out there’s a variety of problems with using the statement of financial position as a representation of economic reality.

He points out and then moves past the idea that not all debits are assets and not all credits are liabilities. That’s easy to understand.

More significantly is that not all assets are reflected as debits and not all liabilities are reflected as credits.

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Helpful comments from 2017 CalCPA Not-for-profit conference, part 1

Leave a Comment / Accounting, Audits / By Jim Ulvog

Here are a few of the comments from the May 24, 2017 Not-for-profit conference presented by California Society of CPAs that I thought would be of interest to others in the nonprofit community. Since all comments are the opinion of the speaker, neither their name nor organization will be mentioned. The ideas mentioned can stand or fall on their own.

This is the first of two posts. The next discussion will address changes in financial statement presentation outlined in ASU 2016-14. In this post: tax, revenue recognition, and single audit.

(Cross-posted from my other blog, Nonprofit Update.)

Tax update:

It might just be possible that filing a form 1023 or 1023-EZ is so easy that people can get exempt status for an organization without knowing the requirements to properly operate a charity and maintain exempt status. In examinations to follow-up on exempt status, the IRS is finding a lot of charities are out of compliance.
One of several focuses of the IRS is filing of FBARs, those forms used to report overseas bank accounts. One ripple effect of chasing money laundering is the impact on charities who have overseas accounts. Even though there is minimal risk of those accounts being used for tax evasion the FBAR filing requirement still apply. As a reminder, the deadline for filing FBARs is now April 15 with a six-month extension available.

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Not-for-profit risk alert for 2017 is available

Leave a Comment / Accounting, Audits / By Jim Ulvog

Cover of 2017 risk alert from the AICPA, used under fair use since I’m urging you to buy their product.

The 2017 risk alert for non-profits is available from the AICPA.

Highlighted updates this year include:

AUS 2016-14 – New financial statement presentation
ASU 2016-02 – Leases
SAS 132 – Going concern

If you don’t feel overwhelmed, you haven’t been paying close enough attention to recent pronouncements. If so, the risk alert will help you catch up.

If you are feeling overwhelmed, the risk alert is a great first step towards to getting comfortable.

Updates for CPAs: going concern and location of debt issue costs

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

Image courtesy of DollarPhotoClub before they merged into Adobe Stock.

The accelerating pace of change doesn’t slow down merely because I have multiple audits in progress plus more that just started. Here are a few articles to help keep all of us up to date on two newly effective standards:

Going concern

For a long time the professional requirements for addressing going concern issues have been located in the audit literature. Yeah, the accounting requirement was in the audit standards. There has been an effort for several years to this guidance out of the SASs and into GAAP. Two articles show the substantial progress:

11/8/16 – Charles Hall at CPA-Scribo – It’s Time to Apply FASB’s New Going Concern Standard – ASU 2014-15 creates a requirement in GAAP for management to assess whether there are conditions or events which raise substantial doubt about ability to continue as going concern.

This is effective for financial statements ending on or after December 15, 2016. Translation: 12/31/16 financial statements. That would be the ones you’re auditing or reviewing or compiling at the moment.

If you haven’t tuned into this new requirement, check out Mr. Hall’s article before you download the ASU for study. Hint: the new requirements on management will seem remarkably familiar.

In case you hadn’t thought about it, having a GAAP-based going concern requirement placed on management means that there is now a specific need to address going concern in a review or comp.

2/22/17 – Accounting Today – AICPA changes going concern audit standard – Now that the going concern requirements are in GAAP, the ASB has modified the rules in the audit literature.

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Common findings on audits during peer review

Leave a Comment / Audits, Peer Review / By Jim Ulvog

Image is from AICPA. Used under Fair Use since, after all, I am promoting three of their products. — Image is from AICPA. Used under Fair Use since, after all, I am promoting their products.

The AICPA’s annual Audit Risk Alert General Accounting and Auditing Developments—2016/17 provides a useful summary of common peer review findings on audits.

What I like about this particular list is that it is short enough to actually provide focus. Frequently such lists have the filter set so broadly that the list covers practically all the findings that have surfaced during all peer reviews. Sometimes I’m left with the feeling that a list of findings reads like a list of every single step you need to perform during an audit.

Here is the short list provided in the risk alert, along with my explanation:

Incorrect dating of audit report – The auditor’s report needs to be dated no earlier than when sufficient appropriate audit evidence has been obtained to support the opinion. This means …

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A few highlights from 2017 Audit Risk Alert

Leave a Comment / Accounting, Audits / By Jim Ulvog

The AICPA’s annual audit risk alert had been out a little while. There is a lot of good stuff covered that all auditors really ought to check out. I heartily recommend reading the annual update before you get very far into your 12/31 audits. The document is Audit Risk Alert General Accounting and Auditing Developments—2016/17.

I will mention just a few highlights.

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2017 Risk Alerts available

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

The 2017 audit season is about to begin. Planning is well underway for all those 12/31 clients.

To help you get ready, the annual updates to AICPA risk alerts are available. Consider:

I read the risk alerts every year. They are great for reminding me of what I already knew and even better for pointing out what tidbits I had missed.

You might want to check them out in the lull before the rush of field work hits.

Pondering on the Wells Fargo fiasco and more news

Leave a Comment / Audits, Other stuff, Pondering / By Jim Ulvog

Original finish on mud wagon used by subcontractor to Wells Fargo on San Diego-Julian run in 1870s. Wagon is housed at the Seeley Stable Museum in Old Town San Diego Historic Park. April 2012 photo by James Ulvog. — Original finish is visible on mud wagon used by subcontractor to Wells Fargo on the San Diego-Julian run in 1870s. Lighter and cheaper than the Concord wagon, this was useful in desert and mountain areas. Wagon is housed at the Seeley Stable Museum in Old Town San Diego Historic Park. April 2012 photo by James Ulvog.

Here’s a few articles that were interesting to me in the last two days about the Wells Fargo fiasco, previously discussed here, here and here.

First, a digression into the ethics and audit issues of systemic faking of accounts and coding diesel engines to cheat.
Next, pondering whether there will be any clawback of the $124M bonuses from the senior executive who managed the retail banking area.
Finally, two articles describing the DoJ opening a preliminary investigation.

9/14 – Prof. Mike Shaub at Bottom Line Ethics – Plausible deniability and the insulation of upper management – Prof Shaub ponders two fiascos in the news for the deeper ethical issues. Both the Volkswagon diesel engine scheme and the Wells Fargo fake account fiasco reflect poorly not only on the companies and their culture, but the state of ethics in business and our society.

We, collectively, need to grapple with those issues.

The article raises unsettling issues for auditors. Let’s ponder for a moment…How can we detect corporate cultures and entity tone-at-the-top environments which allow building a cheating code into the core operation of a company’s software? How can we detect an environment that incentivizes staff to cheat customers or risk losing their jobs for not hitting sales targets? Those are sobering questions.

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One of three major cases against PwC is settled.

Leave a Comment / Audits, Pondering / By Jim Ulvog

Of the three lawsuits against PwC that are large enough to potentially be life threatening, one was settled by PwC after several weeks of the trial. I previously discussed Litigation cases that could possibly take down a Big 4 firm.

On 8/26, the Wall Street Journal reports PricewaterhouseCoopers Settles $5.5 Billion Crisis Era Lawsuit.

Francine McKenna has repeatedly pointed out on Twitter that this is the first major case in a long time against an accounting firm which actually got into court. There are a few weeks of testimony which will likely be a good source for researchers and journalists wanting to understand how audits of large companies can go sour.

Amount of settlement is confidential. This settlement still leaves a $1B suit by the FDIC over the failed bank that was audited by PwC.

Let me give a thumbnail picture of this suit. My simplification will obviously show my confusion. Yeah, my bias will probably be visible too.

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