Good article in CPA Trendlines by Jody Padar (The Radical CPA) on scope creep; I like the advice – not only in terms of revenue generation but also risk management. And, if you’re providing any type of attest service, this is critical. Spelling out your services – what you will and won’t be providing a client – is also key. Only thing I would add to the same engagement letter (for a firm that must be independent) is language to reflect the client’s agreement to assign competent management to oversee the nonaudit service and take responsibility for all management decisions.
Could FASB revisions to the concept of “materiality” (as described in this article) help “unblur” some lines?
AICPA independence rules often reference the FASB literature on key concepts such as control and significant influence. Materiality – while used in financial interest, affiliate, business relationship, and other rules – has long been undefined by standards-setters, with the understanding that CPAs make materiality judgments all the time.
Time will tell whether this will be a help –
A Journal of Accountancy article provides some great advice on becoming a niche CPA firm, enhancing the quality of your services, and reducing costs and regulatory/litigation risk. Specialization also reduces the burden on you and your people to keep up with myriad technical standards and remain competent.
If you’re keeping up with the profession, you know there’s a movement underfoot to improve audit quality. Both the DOL and the PCAOB have cited concerns about audits of benefit plans and broker/dealers, respectively, and the AICPA has released a 6-point plan for improving audit quality.
Technical standards overload and the accompanying risks are here to stay most likely. Here’s a way to address those issues.
My first blog since coming back.
A lot has happened (and not happened…) since 2011; the PCAOB floated the idea of mandatory audit firm rotation (that didn’t happen but something close is about to happen in the EU). The SEC levied steep fines on firms for independence violations for situations ranging from lobbying on behalf of clients to business relationships with client directors or trustees. The most recent case created a precedent for sanctioning entities beyond the firm, apparently, for their participation in creating or allowing the violation to happen.
In continuing its inspections of broker/dealer auditors, the PCAOB has cited a stubbornly high rate of independence infractions these past few years – mainly for firms keeping client books or getting indemnified for their audits. (In the meanwhile, the firms became subject to additional independence requirements of the PCAOB). The PCAOB has sanctioned several firms for these offenses. The Board keeps imploring firms to clean up their act, and I suspect these enforcement actions are their way of sending a not-so-subtle wake-up call to the profession.
On a brighter note, the AICPA released its long-awaited Ethics Codification, a total revamp of the Code of Conduct, which fully integrates the conceptual framework approach, is more intuitive, and better organized. Something good for the profession.
More to come, I’m sure.