Posts Tagged ‘audit’
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:
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.
If you casually pay attention to what is going on in the land of Big 4, a world far, far away from most of us in the accounting world, you might have interest in two recent articles from Jim Peterson, pondering the survivability of the huge firms. I will summarize what I think are a few highlights.
2/13 – Jim Peterson at Re:Balance – If the Big Four Went “Ex-advisory” – Deja Vu? Or Worse? – Regulators don’t like the huge consulting practices in the Big 4 and the partners in the Big 4 consulting arms don’t like the constraints on their growth, opportunities, and compensation from being tied to the audit & tax practices.
Article speculates on the impact if the consulting work were to be spun off, as happened back in 1998 through 2001.
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 Read the rest of this entry »
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:
- General Accounting and Auditing Developments – 2016/17 Audit Risk Alert
- Developments in Preparation, Compilation, and Review Engagements 2016/17
- Government Auditing Standards and Single Audit Developments – Audit Risk Alert (16/17 edition)
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.
Let’s take a look at the income generated by Wells Fargo from the dummy accounts their staff opened in relation to the revenue the bank generates. Let’s even consider the fine in relation to income over the four years the schemes were running. I have not spared criticism of the bank previously. But let’s look at this mess from another perspective.
Here’s the bottom line – Finding the fake account fiasco means finding this:
When hidden in this:
That’s one penny of false revenue for every one thousand six hundred dollars of legitimate revenue.
To start the discussion, consider Michael Rapoport’s article at the Wall Street Journal on November 1: Wells Fargo: Where Was the Auditor – Several of the Senators sent KPMG a letter last week suggesting the audit should have caught the fake account fiasco.
Article explains that audits aren’t designed (and aren’t capable of) finding frauds that don’t have a material impact on the financial statements.
Article makes the very important point that an audit designed to catch frauds as small as the fake account mess would have a cost so high as to make the audit completely unaffordable.
So let’s take a look at materiality in relation to the massive size of Wells Fargo.
Amounts for materiality discussion
Let’s look at some numbers for perspective.
The following article provides a superb update on recent developments in the peer review program. The article is graciously provided by the California Society of CPAs and the information described here applies in all jurisdictions across the U.S.
Because the entire article is quoted verbatim without any additional comments from me, none of the article will be placed in quotation marks.
Originally published by CalCPA (www.calcpa.org) in the October issue of California CPA magazine.
Used with written permission of the California Society of CPAs.
Be Prepared – A Comprehensive Peer Review Update
By Linda McCrone
Peer review is a successful program that helps firms improve their quality control systems and elevate the quality of accounting and auditing engagements. The AICPA contributed the software program that tracks peer reviews and the staff that manages the program. AICPA member volunteers contribute their time to oversee the program, keep the peer review program forms current and make certain that the peer review standards remain relevant. But like any successful program, peer review must continue to evolve to keep up with events.
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.