Having struggled through college with mediocre grades, it took me decades to realize that my grades didn’t matter much! I learned almost everything I know after college, on the job. Before you click your back arrow, let me correct myself a little. Grades do matter. Good grades demonstrate a student’s diligence, commitment and achievement, and they are necessary to get a good job. They are, however, only the beginning.
Saturday, October 31, 2009
Training Outstanding Auditors
Tuesday, October 20, 2009
IFRS not OCBOA
Under Rule 202, a member who performs professional services shall comply with the standards promulgated by the designated bodies. Additionally, a member may not say that financial statements are in accordance with generally accepted accounting principles unless they follow the standards promulgated by a standard setter listed in Appendix A of Rule 203.
The list of designated accounting bodies includes the Financial Accounting Standards Board (FASB), the Governmental Standards Accounting Board (GASB), the Federal Accounting Standards Advisory Board (FASAB), and the IASB.
There have been questions as to whether IFRS and IFRS for Small and Medium Entities (IFRS for SMEs) fall under “other comprehensive basis of accounting” or OCBOA. The answer is that they do not. IFRS and IFRS for SMEs are GAAP.
More information on financial statements prepared on a comprehensive basis of accounting other than GAAP is found in AU Section 623 Special Reports. It includes income tax basis, cash basis, and modified cash basis among others.
CPAs may need to check with their state boards of accountancy to determine the status of reporting on financial statements prepared in accordance with IFRS or IFRS for SMEs within their individual state.
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Tuesday, October 13, 2009
ASUs on Revenue Recognition
On September 15, 2009 the FASB Accounting Standards Codification™ (Codification) became the source of authoritative U.S.GAAP. Rules and interpretive releases of the SEC are also sources of authoritative GAAP for SEC registrants. The FASB will not issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts. Instead it will issue Accounting Standards Updates (ASU). ASUs are not considered as authoritative in their own right, instead they will serve to update Codification; provide background information about the guidance; and provide the bases for conclusions on the change(s) in the Codification.
As of this writing the FASB as issued 14 ASUs. Many of them are technical corrections to SEC material contained in the Codification. However, you should be aware of two of these Updates, 2009-13 and 2009-14. Both of these Updates have to do with revenue recognition.
ASU 2009–13 Revenue Recognition (Topic 605), Multiple–Deliverables Revenue Arrangement, (a consensus of the FASB Emerging Issues Task Force).
This Update addresses the accounting for multiple–deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit. It requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method. The amendments in this update will affect accounting and reporting for all vendors that enter into multiple– deliverable arrangements with their customers when those arrangements are within the scope of Subtopics 605–25 (Revenue Multiple–Element Arrangements).
ASU 2009–14, Software (Topic 985) Certain Revenue Arrangements that Includes Software Elements (a consensus of the FASB Emerging Issues Task Force).
This update changes the accounting model for revenue arrangements that include both tangible products and software elements. The amendments also provide guidance on how a vendor should allocate arrangement considerations to deliverables in an arrangement that includes both tangible products and software.
ASUs are available for download at http://www.fasb.org/.
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Saturday, October 10, 2009
Can Owner/Manager Controls Be Audited?
Many auditors believe that owner or manager controls are unauditable because their performance is usually not documented. Interestingly, new risk assessment stan
An auditor’s evaluation of management’s integrity as high has at least two significant affects on small audits. First, a strong control environment reduces risk at the financial statement level. Lower risk mean less evidence is required to reach a conclusion on the financial statements as whole. Second, high management integrity means higher reliance can be placed on responses to inquiries in tests of key controls, thereby reducing the amount of other substantive evidence necessary at the assertion level.
The answer to the headline question above is yes, owner/manager controls can be audited. Not only are they auditable, selecting and serving clients employing management personnel with good character and high integrity can increase both engagement and firm profits! What has been your experience? Post your comments and questions below.
Saturday, October 3, 2009
How Does Management Integrity Affect Audits?
We’ve heard it referred to as the “tone at the top.” The character and behavior of an entity’s management sets the stan
From the five elements of internal control developed by the Treadway Commission in the late 1970s, we recognize management’s role as the “control environment.” The control environment of an entity is the backbone of its internal control. The smaller the entity, the more directly management’s practices affect control risk. The existence of key, or entity level, controls performed diligently by an owner or manager can reduce control risk, even when there is limited segregation of duties.
Key controls, like inspecting supporting documents when signing checks, or receiving and reviewing bank statements before a bookkeeper reconciles an account, can provide assurance that misstatements due to error or fraud will not go undetected. In other words, control risk can be less than high!
Based on the assumption management’s integrity is high, the following table demonstrates a good system of internal control for a small entity.
BOOKKEEPER | OFFICE MANAGER | OWNER/MANAGER |
RECORDS ACCTS. RECEIVABLE | RECEIVES VENDOR INVOICES | SIGNS CHECKS |
RECONCILES PETTY CASH | RECEIVES CASH AND MAIL | PREPARES/REVIEWS DEPOSITS |
PRINTS CHECKS | MAILS CHECKS | MAKES BANK TRANSFERS |
MAKES GENERAL LEDGER ENTRIES | APPROVES INVOICES | RECEIVES BANK STMT. BEFORE REC. |
RECONCILES BANK STATEMENTS | APPROVES PURCHASE ORDERS | APPROVES BANK RECONCILIATIONS |
| APPROVES PAYROLL | REVIEWS SALES INVOICES./AGINGS |
| DISTRIBUTES PAYROLL | MAKES DEPOSITS |
| DISBURSES PETTY CASH | |
Do you think these controls can be audited? Why or why not? If so, what affect can management's integrity have on a small audit? Post your comments below.