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There’s still time to fulfill your 2025 CPE requirements

Tue, 03 Feb 2026 18:02:51 GMT

If you find yourself short on Continuing Professional Education (CPE) credits for the three-year period ended 2025, there’s still time to get them.

The American Institute of CPAs (AICPA) requires 120 hours of CPE credits every consecutive three-year period, with at least 20 hours in any single year. The Institute provides a two-month grace period, meaning you have until the end of February 2026 to pick up any remaining credits you still need. But keep in mind that those extra hours will not count towards 2026.

This applies to both CPAs and non-licensed practice professionals who work in a public accounting firm that undergoes an AICPA peer review.

Practice professionals are responsible for retaining their CPE certificates (which state the sponsor title and description of content, date, location, and number of CPE hours earned) to show evidence of attendance.

The AICPA provides exemptions for practice professionals who are retired, unemployed, or who have temporarily left the workforce and do not hold themselves out as CPAs to third parties. The same applies to practice professionals who have formally placed their CPA certificate/license in inactive status with their State Board of Accountancy and do not hold themselves out as CPAs to third parties. Waivers are available for shortfalls due to health, military service, or extreme natural disasters.

It’s easy to see how CPE can be perceived as a burden, but it’s worth remembering that AICPA requirements change , audit standards change , and that it’s important to stay current with emerging technologies like AI , which is bringing a sea change to the industry. And, of course, some things like Group Audit requirements can be more complicated than you imagine. CPE is a way to improve yourself and your attest practice, not a drain on it.

Besides the AICPA CPE requirements, practice professionals who work on the following attest engagements have to further comply as follows:

“Yellow Book” Engagements: If you work on audits subject to the Government Auditing Standards, including planning, directing, performing audit procedures, or reporting, you must complete 24 hours of CPE every two years. These must directly relate to government auditing, the government environment, or the specific or unique environment in which the audited entity operates.
In addition, auditors who perform any amount of planning, directing or reporting on Yellow Book audits, and auditors who are not involved in those activities but charge at least 20% of their time annually to Yellow Book audits are required to take another 56 hours of CPEs, for a total of 80 every two years.
Exemptions are available if you charge less than 40 hours annually to Yellow Book audits.
ERISA Engagements: If your firm is a member of the AICPA Employee Benefit Plan Audit Quality Center and you work on, manage or sign audit opinions for Employee Retirement Income Security Act (ERISA) employee benefit plan audit engagements, you are required to take 8 hours of employee benefit plan-specific CPEs in every three-year period prior to signing an ERISA employee benefit plan audit opinion or managing an ERISA employee benefit plan audit engagement. Eight hours are required for every three-year period going forward.

SEC Issuer and Broker-Dealer Engagements: if your firm is an independent registered member firm of the Public Company Accounting Oversight Board (PCAOB), each practice professional must complete 120 hours of CPE credits every three years, with at least 20 in any single year.
Practice professionals who devote at least 25% of their time to performing audits, reviews or other attest engagements (excluding compilations), or who have partner, manager or in-charge responsibilities for the overall supervision or review of any such engagements, must obtain 48 hours of CPEs in accounting and auditing subjects every three years, with no less than 8 hours in any one year.

Of course it’s easiest to do 40 hours each year, but circumstances sometimes get in the way. The important thing to remember is there’s still time to reach the 120-hour minimum for the three year period ended 2025!

Collemi Consulting leverages over three decades of experience to provide trusted technical accounting and auditing expertise when you need it the most. We regularly work with CPA firm leadership to help them reduce risk and maximize efficiencies. To schedule an appointment, contact us at (732) 792-6101.

AI Has Come to Auditing: Are You Ready?

Mon, 01 Dec 2025 02:02:13 GMT

Artificial intelligence (AI) is now becoming more of a part of the auditing process, and if you’re not using it, it’s time to start! The benefits are huge, starting with the ability to automate repetitive tasks, review all data rather than sampling, and allow real-time auditing.

AI is not the future of auditing, it’s here now! AI is fundamentally changing the nature of auditing, and you’ve got to become comfortable with that. If your continuing professional education (CPE) schedule doesn’t include learning about AI and its strengths and weaknesses, it should. There are plenty of resources available from organizations like the Institute of Internal Auditors , the Center for Audit Quality (CAQ) and the American Institute of Certified Public Accountants’ (AICPA) CPA.com . Auditors must now understand how AI systems work, what data they use, and where biases might occur.

That said, what AI is not is a replacement for human auditors along with their professional judgment and skepticism. It’s a tool for humans to use. A big, game-changing tool, but it’s a tool nonetheless. But the key to success is that auditors must remain central to the process.

This changes everything

Auditing is changing from a process defined by manual data checks, sampling, and periodic reviews to one based on automation, analytics and continuous insight.

First of all, AI can automate routine work like data entry, reconciliation and report generation, reducing the risk of manual errors and freeing up auditors to spend more time on more complex activities that require critical thinking.

Second, AI and machine learning tools can comb through mountains of data — including live data — and flag anomalies, spot unusual patterns and potential risks, and generally make compliance lapses and fraud signals easier to detect. AI also learns from the data it reviews, making it easier to flag suspicious patterns and transactions that are outside of the norm as its experience grows.

Third is that AI means eventually the end of audit sampling, as AI tools can look at the whole data set in a way that human auditors cannot possibly do and immediately find the “needle in the haystack”!

Fourth, that live data part is another key benefit of AI: real-time, continuous auditing is now possible. Instead of spending weeks or months reviewing records, exception reporting can happen immediately, giving management time to take corrective action before a material misstatement can occur.

The result is that the relationship with clients changes from one of episodic annual reviews to continuous collaboration. That is shifting the auditor’s role from analyst to advisor.

This changes nothing

AI is radically changing how auditors work, but it hasn’t changed why they exist or the core responsibilities of the public accounting profession.

Auditing is still focused on providing independent, reasonable assurance that financial statements do not contain any material misstatements, whether due to error or fraud.

AI technology can add to auditors’ capabilities, but the core of the process still relies upon trust, transparency and accountability, which is why it is vital that auditors remain central to the process.

The insights provided by AI are powerful, but their accuracy and completeness must still be determined by the review and validation of auditors applying professional skepticism and judgement. AI can flag anomalies but it cannot interpret intent, understand context or evaluate plausibility.

AI can be taught to understand a client's business model, but it cannot interpret the realities that the business faces, like strategic shifts, market & cultural pressures, and regulatory environments. Data must be interpreted with human context.

Also unchanged is that auditors are personally and professionally accountable for their opinions. AI is a wonderful tool, but auditors are still responsible for validating what the AI does, documenting their reliance upon those tools, and retaining control over final conclusions.

Collemi Consulting leverages nearly three decades of experience to provide trusted technical accounting and auditing expertise when you need it the most. We regularly work with CPA firm leadership to help them reduce risk and maximize efficiencies. To schedule an appointment, contact us at (732) 792-6101.

Group Audit Standards Are Changing. Are You Ready?

Wed, 01 Oct 2025 01:33:58 GMT

Generally speaking, group audits should be far more common than they actually are!

On top of that, the new group audit requirements kick in next year, with some major changes: They have created a whole new class of “referred-to” auditors that must be considered when performing a group audit. And it’s time and past time to start preparing for that now.

The American Institute of Certified Public Accountants’ (AICPA) Auditing Standards Board (ASB) issued SAS 149 that revises the definition of a “component auditor” and takes an updated risk-based approach to planning and performing a group audit. Issued in March 2023, SAS 149 goes into effect for audits of group financial statements for periods ending on or after December 15, 2026.

Before we get into that, it’s vital to know that numerous times, auditors miss the fact that a group audit is necessary in the first place. That’s because determining what is and isn’t a “component” can be simple, but it’s not always obvious.

Depending on how management runs its operations, a company can be a single entity with two or more different business activities means a group audit is necessary.

When dealing with a single entity, many times, auditors see a single business or business line and miss what is really a separate “component” requiring a group audit, unless they have a consolidation of two or more subsidiaries staring them in the face.

The question you should be asking yourself is, does the company have multiple product lines, service lines, branches, or anything else where the CFO and the CEO of the company manage their operations by tracking the performance of those multiple product or service lines? Are there multiple locations or divisions?

It doesn't necessarily mean the company has to have a subsidiary or another legal entity that they control. Auditors are required to use professional judgment to determine whether a business activity represents a component, regardless of whether it is a separate legal entity.

The current standard

Group financial statements can include aggregated financial information from entities or business units like branches or divisions. If business units with separate management, locations, or information systems are aggregating financial information, you need a group audit. Here are some examples:

Combined financial statements, when for example two companies are owned by the same person
Consolidated financial statements, in which a company owns another company
A joint venture
A company organized by geography, for example American, Canadian and European units, each with their own general ledger
A company with different business activities where performance is tracked separately
A company that reports an equity method investment on its balance sheet

Look at business activities first and determine if they are significant in terms of dollar amounts, or materiality, or if there’s a high risk in that part of the operations. Follow the flow of the numbers!

SAS 149 kicks in

Alongside the work of component auditors cited — for whose work the group auditor is responsible — there’s a new category: Referred-to auditors

These are secondary auditors, brought in to issue their own opinion on a particular part of the operations that the group auditor will reference in their work. The new group audit standards make clear that the work of the referred-to auditor is relied upon in the final group audit, but was not carried out by the group auditor.

These referred-to auditors are not component auditors under the terms of SAS 149, Special Considerations — Audits of Group Financial Statements (Including the Work of Component Auditors and Audits of Referred-to Auditors).

SAS 149 is effectively telling group auditors to say very clearly, “Hey, we didn’t look at this part of the operation but we are referring to and relying upon this opinion.”

The new standards also make clear that component auditors are part of the engagement team, whereas referred-to auditors are not.

Risks grow

For all that, the addition of referred-to auditors is not SAS 149’s most significant change: It provides an updated risk-based approach to planning and performing group audits.

Under the existing standard a group engagement team is required to identify significant components at which to perform audit work.

However, SAS No. 149 directs the group auditor to use professional judgment in determining the components at which to perform procedures, based on assessed risks.

Just like the auditor is required to use professional judgment in determining what should or shouldn’t be a group audit.

Getting Involved with Boards and Committees

Wed, 20 Aug 2025 14:12:42 GMT

Once you reach a certain point in your career, say five to ten years in, it’s a good time to start getting involved with professional organizations ranging from associations, not-for-profits and state boards and committees.

There are a lot of benefits to getting involved in professional organizations that start with making new relationships and even getting new clients, but go far beyond that. There are plenty of soft skills to be learned from being active in your profession.

One is simply learning how to deal with businesses, professional boards and with non-profits. These are organizations that will ultimately be important to you and your practice, and knowing how to navigate them is a skill that will stand you in good stead throughout your career.

A good place to start is with your local chapter of your State Society, the National Society of Accountants (NSA) and American Accounting Association (AAA), as well as your state board of accountancy . But there are others as well, even local and state Chambers of Commerce .

Benefits include:

Refining existing skills: You will utilize skills like financial management, budgeting and bookkeeping in new contexts.
Gaining leadership and project management experience: Volunteering often means taking on leadership roles and overseeing projects.
Staying current with industry trends and regulations: Staying up-to-date is a byproduct of getting involved.
Expanding professional networks: Volunteering provides the opportunity to meet and build relationships with other accountants and business executives, work with leaders in your field, and meet potential mentors.
Building a strong reputation: Actively contributing to a board or committee can enhance your standing within your field, which can be valuable for gaining new clients and career advancement.
Increasing visibility: getting involved in projects and committees distinguishes you from peers and can demonstrate a commitment to your career.
Professional development : Many organizations offer professional education courses, workshops and conferences that go beyond your required continuing professional education (CPE) requirements.
Credentials and certifications: Many industry organizations offer professional certifications and credentials that can help differentiate you from your peers.

All of these benefits can be tied back into your career and professional development. As your involvement grows over time, so will the benefits. You’ll develop a professional network of likeminded leaders in their fields of expertise that will help you advance your career both inside and outside of the organizations for which you volunteer.

And as your commitment to these organizations grows over time, so will your leadership in them. Committee memberships will become committee leadership, with the resulting increase in visibility and prestige. Participation at events will turn into speaking opportunities and a higher professional profile. You’ll have the opportunity to influence policy and the direction of your whole industry. Your professional network will expand with higher-level and more advanced professionals within your field over time.

You’ll also build a stronger resume, one that demonstrates both your commitment to your field and your expertise in it.

Working with organizations outside your professional field like a chamber of commerce or local/state government can bring many of these benefits as well: Networking and meeting potential new clients, raising the profile of yourself and your firm, and simply learning how to interact with businesspeople and executives outside the profession. Five or ten years into your professional life is a good time to start branching out a little bit and do work that’s outside your firm.

Beyond all this, there is a sense of personal fulfillment that giving back to your profession and community can bring. It’s important to get involved in issues that are important to you.

You Have Less Than Just Six Months Left to Implement the AICPA’s New SQMS and the PCAOB’s New QC 1000 Standards

Wed, 16 Jul 2025 02:47:47 GMT

Nine months ago, we warned that two new sets of quality control and management standards were coming due on December 15, 2025 and strongly advised public accounting firms not to wait until the last minute to begin implementing them.

Well, it’s now the last minute.

With just six months left until the the American Institute of Certified Public Accountants’ (AICPA) new Statements on Quality Management Standards (SQMS) and the Public Company Accounting Oversight Board’s (PCAOB) new QC 1000 quality control standards go into force, there’s no time left to delay or procrastinate.

Here’s a short overview of each set of standards and what’s necessary, but you can find our full blog for the AICPA’s new SQMS here , and the PCAOB’s new QC 1000 standards here . Both will require extensive effort to come into compliance.

The AICPA’s SQMS

The SQMS are what we here at Collemi Consulting & Advisory Services like to call the “thinking standards.”

This means you really have to think it through and customize it for your attest practice, based on the type of clients you have and the services you provide, as the SQMS now takes an entirely new, risk-based approach to quality.

There are now eight SQMS components, including two completely new ones: Risk Control, and Information and Communication.

The new risk assessment process requires firms to establish specific quality objectives, meaning they must “identify and assess quality risks, and then they must design and implement responses to those risks that are tailored to the firm’s unique circumstances.”

Information and communication requires the establishment of processes that support the SQMS, including reliable internal and external sources of information. It also mandates the creation of a culture that supports and reinforces the responsibility for sharing information with colleagues and the firm.

All of the six other quality objectives have new requirements as well:

● Governance and leadership

● Relevant ethical requirements

● Acceptance and continuance of client relationships and specific engagements

● Engagement performance

● Resources (formerly Human Resources)

● Monitoring

Firms have three responsibilities between now and December 15:

1) Continue using the extant standard (Statement of Quality Control Standard (SQCS) No. 8 (Redrafted)

2) Perform the risk assessment and gap analysis, and then design and implement the new standards.

3) Consult with your peer reviewer before final implementation

Firms then have until Dec. 15, 2026 to carry out an annual evaluation of their new quality management system.

The PCAOB’s New QC 1000 Standards

The PCAOB’s new QC 1000 standard is intended to make independent registered public accounting firms who audit issuers (public companies) and broker-dealers significantly improve their quality control (QC) systems.

It applies to all PCAOB-registered member firms. Those that audit more than 100 issuer clients annually have more extensive requirements to contend with.

The new standard enables firms to identify their specific risks and design a quality control system, including policies and procedures to guard against those risks. The goal is to create what the PCAOB refers to as a “a continuous feedback-loop for improvement.”

QC 1000 has quality control requirements that do not appear in other QC standards. They tend to be more prescriptive and more tailored to the U.S. legal and regulatory systems.

There are 10 areas in which the QC 1000 goes beyond what can be found in other existing standards.

These are:

● Evaluation and Reporting

● Governance and Leadership

● Ethics and Independence

● Monitoring and Remediation

● Quality Objectives

● Information and communications

● Resources

● Risk Assessment Processes

● Roles and Responsibilities

● Documentation

That’s not even an exhaustive list, and it’s coming into effect at the same time as the AICPA’s SQMS.

Our recommendation is to make two completely separate documents rather than trying to roll it all into one giant document. It’ll be too confusing, especially for people who might not have to audit both public companies, broker-dealers and private companies.

We also advise you to appoint a separate champion within the firm for each of the two different sets of standards. Otherwise it just gets too complex.

Like we said, time is running out. It’s time to get it done or get help doing it.

Consultations and Differences of Opinion

Thu, 12 Jun 2025 02:39:06 GMT

When questions or technical issues arise, it’s important that they be resolved in a timely and efficient manner. That means consulting with other members of the engagement team or someone either in the firm or outside of the firm with more expertise or experience.

This is especially important when there is a difference of opinion or uncertainty about a technical question, the application of Professional Standards procedure, the application of firm policy, or the application of a rule, regulation, or procedure from a regulatory agency.

First off, a CPA firm should have an up-to-date library, as well as industry and other specialized materials related to their client’s industry. This is an important tool for answering questions or settling differences of opinion.

As there are many issues/challenges that can cause this kind of question or difference of opinion to arise, and in many cases in-house library resources won’t be enough.

When differences arise

These difficult or contentious issues begin with any engagement in which a modified or adverse report is likely to be issued. Then there’s any engagement involving material litigation of a first-time or complex technical pronouncement.

Other issues that can arise include industries with specialized accounting treatments, auditing or reporting requirements, or with complex or unusual transactions. Emerging practice problems also fall into this category.

Having choices among accounting principles generally accepted in the United States of America (U.S. GAAP) either initially or when an accounting change is made is another situation in which questions can arise. So is the need to reissue an audit report, consider omitted procedures after a report has been issued, or the discovery of facts that were not known when the report was issued.

More serious issues include any restatement to financial statements upon which a report was issued. These cases require consultation with the managing partner and quality control partner and their approval of the resolution. Restatements are considered contentious or difficult issues, and must be carefully documented at every stage.

Then there are questions or differences of opinion about documents to be filed with a regulatory agency, and especially meetings with regulatory agencies in which the firm will be called upon to defend the application of U.S. GAAP or auditing standards generally accepted in the United States of America (U.S. GAAS) that have been questioned.

When questions arise

First of all, anytime there is a question requiring consultation or a difference of opinion arises either within the engagement team, or between the engagement partner and the engagement quality control reviewer (EQCR), the issues must be discussed between the parties involved. If any member of the team disagrees with the resolution, it should be escalated based on the CPA firm’s quality control policies and procedures.

Second, look for people within the firm with the knowledge, seniority or experience to bring expertise to the question. The quality control partner will be a good resource for finding these experts.

Third, if someone with the requisite know-how can’t be found within the firm, or that person is unable to satisfy the difference of opinion, it’s time to look outside the firm. CPAs at other firms, consultants, the AICPA Technical Hotline, AICPA Audit Quality Centers,and other professional and regulatory bodies are all sources of quality control services and expertise.

When looking for an outside subject matter expert (SME), consider their professional certifications, licenses or other qualifications that demonstrate expertise. Also look at the reputation and standing of the person in question. Of course, look for any relationship with the client.

Consulting specialists

Certain audit or attestation engagements may require the firm to consult with specialists including actuaries, appraisers, attorneys, and even engineers or geologists, among others. Following the guidance in AICPA Professional Standards at AU‐C 620A and AT‐C 105 when such consultations are necessary is vital.

The nature and scope of consultations on contentious or difficult issues should be agreed-upon by all parties. The results of those consultations must be well-documented so as to ensure that the issue which required outside expertise is clearly stated. So must the results of the consultation, the decisions made and the basis upon which they were made, and how those decisions were implemented. The documentation must show that the conclusions reached were understood by both the persons consulting and the consultant.

When escalating isn’t enough

If the difference of opinion cannot be resolved by any of the aforementioned steps, it’s time to bring the matter to the managing partner and/or quality control partner.

The managing partner and/or quality control partner will resolve the dispute, possibly in consultation with other experts or regulatory entities. The resolution must be documented, and the report should not be released until differences of opinion are resolved.

At this point, anyone who still disagrees with the outcome will document their difference of opinion on the matter.

At every stage of this process, it is the engagement partner who has responsibility for ensuring that differences of opinion are resolved, and that they are properly documented.

Soft Skills: How To Be an Active Listener

Fri, 16 May 2025 02:31:38 GMT

Being an active listener takes a lot more than just paying attention. It requires understanding the other person, and then conveying that you understand them, are interested in what they are saying and are engaged in the conversation.

There’s never been a more important time to be an active listener. With the post-COVID world making remote work conversations a daily occurrence, it’s harder than ever to make — or pick up on — subtle clues that your partner in the conversation is making.

As a leader, it’s vital to make sure your reports feel listened to and your clients feel their needs and concerns are being heard. If they don’t they’ll stop sharing information with you — or stop working with you.

Participants in a conversation have two goals. The first is to understand what the person is saying, both in terms of the content and the emotion behind it. The second is to convey interest and engagement in what they are saying.

As a general rule of thumb, as an active listener you’ll want to spend 80% of the conversation listening and 20% talking.

Active listening has three components. The first is paying attention to what is being said and comprehending it. The second is to stay calm and engaged during the conversation, not letting emotional responses break up the flow. The third is conveying that you are interested in what the speaker has to say and understand it, both verbally and non-verbally.

Perhaps the most obvious — and possibly the hardest — rule is to actually stay focused on the conversation: Don’t multitask and don’t put yourself in a position to be interrupted or distracted.

Here are six tips that will help you become a better listener:

A simple but important technique is to repeat people’s last few words back to them. It makes people feel listened to and keeps the conversation on track while giving the speaker and listener a pause to regroup and collect their thoughts.
At the same time, avoid interrupting the speaker. Keep your break-ins natural and brief. Don’t try to immediately fill a void while the speaker is collecting their thoughts.
Putting what has been said in your own words shows comprehension. Paraphrasing is an effective way of being sure you actually understand what they are saying, and makes clear to the speaker that you are paying attention.
Non-verbal clues are vital, both giving and receiving. As the listener you want to nod, use a facial expression, make and maintain eye contact, and use open body language to convey that you are interested in what is being said. At the same time, pay attention to the unspoken part of the conversation. Look for body language and tone of voice to see what the motivation is and what emotions are behind it.
Ask questions. Then ask more questions. This not only conveys that you are listening and comprehending, it helps ensure that you actually are understanding what’s being said. Try not to ask questions with a simple yes or no answer as that can break the conversation’s flow. Instead ask open-ended questions like “can you tell me more about that?” or “what do you think is the best path moving forward?”
Don’t be judgemental, display emotion or interrupt with counter-arguments, which can be frustrating to the speaker. Let them finish. Be open to new ideas.

Becoming a good active listener takes time and practice, but you’ll find the benefits are worth the effort.

The Siren Song of Private Equity Acquisitions

Wed, 30 Apr 2025 18:05:12 GMT

The wave of mergers and acquisitions in the accounting industry over the past five years or so shows no sign of abating as small and mid-size public accounting firms seek to gain the size that lets them invest in new technology and recruitment, and gain other advantages of economies of scale.

While there are lots of arguments to be made in favor of joining forces with other CPA firms, it’s still a fraught process with many potential hurdles.

And it’s not just other public accounting firms doing the merging and acquiring. The private equity firms that have been rolling up small and mid-size CPA firms into larger ones come with plenty of benefits, notably the ability to make the investments needed to compete at a time when automation and artificial intelligence (AI) are bringing a sea change into the accounting business, and competitors are getting bigger.

But they also come with their own baggage, such as questions of conflicts of interest and compliance with the auditor independence rules, as well as a focus on the more profitable tax and advisory service side of the firms.

The money from an acquisition can be enticing, but it’s important to go into it knowing that there’s a price to be paid for it, and what that price is. And how to go about paying it if you do decide to join forces with a private equity firm.

Private equity pros

Private equity firms have been competing to invest in large public accounting firms, but also to buy out and roll up small and mid-size firms for two core reasons. One is a steady and predictable revenue stream, particularly on the audit side, which is very enticing to them. The other is the revenue potential of expanding the more lucrative tax and consulting side of the business.

But they also see the opportunity to grow the CPA firms and make them more profitable by investing in things like staff training, recruitment and cutting edge technology like AI that can transform the accuracy and efficiency of audit processes. And, of course, strategic acquisitions that can further strengthen the business.

Another thing they can do is centralize certain auditing tasks like data processing or routine testing, even moving it offshore for cost efficiency. This can give the core auditing team more time for the deep dive and the ability to focus on more value-added services.

Private equity cons

On the con side, the focus on consulting can lead to the auditing quality side being given less priority for investment and growth. With a focus on short-term profit, private equity funding can come with pressure to focus attention on the higher margin consulting side of the business.

Private equity firms are often eager to scale up the tax and consulting sides of the business, to the point of sometimes creating an alternative practice structure (APS) by investing in or acquiring just those parts of a firm and leaving the audit side, with its need for independence and smaller margins, alone. Which calls into question the benefits of a private equity investment, at least on the auditing side of the business.

Then there’s the threat to auditor independence of having an owner or partner with a large portfolio of companies like tech firms that can provide other services to audit clients. And even when there is no actual threat, these perceived conflicts of interest can be a red flag to audit regulators and standard-setters.

Private equity questions

When you’re looking at an investment or acquisition by private equity there are questions to be asked that aren’t always obvious, or at least that don’t have simple answers.

It’s easy enough to start a conversation about auditor independence and the appearance of impairment or conflicts of interest with the auditing side of the business, but it’s also easy enough to promise that these issues won’t be a problem.

You have to be aware of the other types of services that they're planning to provide to that same client, because that could have an impact on whether or not you can perform the audit or the review work that you’re doing without violating the AICPA’s Code of Professional Conduct.

That’s particularly true with small CPA firms focused on the auditing side of the business instead of consulting, which will suddenly find themselves paired with a large and aggressive tax and consulting business.

But whatever size your practice is, you’ll have to update policies and procedures and be cognizant of the need to create an infrastructure that acknowledges the potential conflicts that come with a private equity firm’s offer.

Testing of Non-Standard Journal Entries to Identify Questionable Transactions

Mon, 24 Mar 2025 16:10:53 GMT

As audit season is in high gear, it’s important for auditors to step back and plan how they are going to audit a client’s books and records.

What are the red flags you’re looking for when it comes time to throw open the books and look through a huge swath of journal entries to pluck out the ones that are questionable, and need to be questioned?

First off, it’s important to understand how journal entries are created at the company being audited.

For an auditor, that means looking at the internal control environment to understand how a journal entry is created: Who’s authorized to create one and who can create one. You have to understand the process. How does it start and how is the entry eventually recorded onto the financial reporting system?

Once you know that, you can determine whether someone can come in and override the system, or if someone can pretend to be someone else and start recording journal entries onto the system.

That will help you figure out what to look for to decide what entries to pull out and ask management to get back up information to support and validate those entries.

Finding the needle

The key here is not to just go through the mechanics, but to really go through the exercise so you can determine if management is playing games in the recording of those transactions. You have to be able to get comfortable with that, and that means you need to be able to document what you’re looking for.

Because what the auditor is really doing is looking for a “needle in the haystack”, to identify the transactions that don’t look right, that don’t make sense in the ordinary course of business.

For example, if the business is not open on weekends, are transactions being posted on a Saturday or Sunday, or even on holidays? If you see rounded numbers or accounts that are seldom used, those can be red flags as well.

Sometimes it can be as simple as asking managers and others like accounting, data entry and IT personnel if they’ve observed any unusual accounting entries.

Depending on the size of the company and scope of the work, you might need to use computerized audit software program — some of them with AI built in — that can scan the entries to identify anomalies.

Red flags

When an auditor is looking for evidence of management override of controls, they can look for some of these 12 red flags indicators:

● Top-side entries

● Entries made to unrelated, unusual or seldom-used accounts

● Entries made by individuals who typically don't make entries.

● Entries recorded at the end of the period

● Post-closing entries with no explanations

● Entries made before or during the preparation of financial statements with no account numbers

● Entries that contain rounded numbers or a consistent ending number

● Entries processed outside the normal course of business

● Accounts that contain transactions that are complex or unusual in nature

● Accounts that contain significant estimates and period-end adjustments

● Accounts that have been prone to errors in the past

● Accounts that contain intercompany transactions

When testing non-standard journal entries and other adjustments, you should look for documentary evidence indicating that they were properly supported and approved by management.

Finally, remember that while most fraudulent entries are made at the end of a reporting period, you shouldn't ignore the rest of the year

It’s Time For Year-End Audits

Fri, 20 Dec 2024 18:23:43 GMT

Are you prepared?

The end of the year traditionally starts the “busy season” for external auditors. But all of the hectic activity is no reason to neglect a highly-developed, measured, and methodical year-end strategic audit plan.

In addition to fulfilling the CPA firm’s own quality control policies and procedures, audit engagements are examined during peer review. A rating of Fail, or even Pass With Deficiencies, can shake the confidence of the firm’s leadership and its clients — to say nothing of the public’s confidence in the results.

Here are some of the key factors we’ve had to address while working with CPA firms that have received negative peer review results:

A thorough and well-crafted audit approach will have to address and satisfy seven basic issues:

Common peer review challenges
Audit planning and supervision
Audit risk and risk assessment procedures
Obtaining and documenting an understanding of the audit client and its environment, including its internal controls
Materiality considerations
Linking audit procedures to mitigate the risks identified and reach audit conclusions
Required auditor communications with those charged with governance

When conducting a risk-based audit approach to the financial statements, the auditor’s overall objective is to provide reasonable assurance that the financial statements, as a whole, are free from material misstatement by error or fraud. This permits the auditor to express an opinion on whether the financial statements are prepared, in all material respects, in accordance with it’s applicable financial reporting framework (e.g., Accounting Principles Generally Accepted in the United States of America (U.S. GAAP).

Right From the Start

It’s worth noting that if you’re going to bring in an engagement quality control reviewer (EQCR), the time to do it is right at the beginning of the engagement.

The idea is to make sure the EQCR hears what the engagement team is thinking and has their attention during planning, rather than at the end of the engagement when work is done and that person begins to review the financial statements and the work papers. That way the EQCR can chime in and give their perspective on things for the engagement team to think about rather than raising them after the fact, potentially delaying the issuance of the audit report.

Audit efficiency is another issue worth focusing on at the beginning, reminding engagement teams to focus on the areas with the most risk — that is, audit smarter and know when they’ve gotten a sufficient amount of audit evidence in an area to make further testing unnecessary.

The EQCR can also make sure the team is up to date on any new rules or requirements that have kicked in — and several have in the last year or so, such as the new standard on current expected credit losses, and the new AICPA standards on risk assessment and auditing of material accounting estimates.

Common Peer Review Problems

There are a number of common mistakes made in risk assessment, starting with the failure to link the substantive procedures performed to the results of the risk assessment.

Another is audit procedures failing to link the client’s financial statement and relevant assertion-level risks for significant classes of transactions, account balances, or disclosures.

A third is designing audit procedures with little regard for the results of those assessments as required by AU-C 315, Understanding the Entity and its Environment and Assessing Risks of Material Misstatements.

Risk Assessment Shortcomings

A commonly cited shortcoming by peer reviewers is auditors’ failure to understand the entity and its internal controls. When conducting risk assessment, it’s useful to remember that it will generally be more effective at the start of the engagement, and that internal control procedures may be performed before the risk assessment document is completed. The auditor, however, is required to obtain understanding of whether the client’s controls have been properly designed and implemented, not required to test internal controls unless mandated under certain circumstances.

AICPA Professional Standards have dramatically changed over the last decade or so due to the issuance of risk assessment standards and Clarity Standards.

Audit Documentation Problems

Audit documentation is defined as “the record of audit procedures performed, relevant audit evidence obtained, and conclusions the auditor reached.”

It is evidence that the audit was properly planned and performed in accordance with the U.S. Generally Accepted Auditing Standards (GAAS), as well as evidence of the auditor’s basis for a conclusion.

Audit documentation should be enough to enable an experienced auditor — one who is independent and competent enough to challenge the engagement team’s procedures and conclusions — to understand the nature, timing and extent of the audit. That applies to understanding the results of the audit procedures performed and any significant findings or issues.

Properly executed audit documentation should answer the basic questions of who, what, when, where, why and how without any verbal explanations from the auditor.

Improve Audit Quality

Audit documentation should provide sufficient and appropriate evidence that risk assessment procedures were performed and that there was appropriate response to address the risk of misstatement at the financial statement level.

It also requires proof that the nature, timing and extent of audit procedures performed were adequate for the engagement, and that those procedures were linked to the assessed risks.

The audit team must document the results of the audit procedures, the conclusions reached, and that significant risks were reasonably considered.

Any departures from presumptively mandatory requirements to Professional Standards must be justified. It must also identify the engagement team that performed the work, when it was completed, the person who reviewed the work, and the date and extent of the review.

Audit workpaper documentation should also identify characteristics of the specific items tested, and discuss significant findings or issues with management or those charged with governance. Any information that contradicted or was inconsistent with the final conclusion on a significant audit finding or issue that was addressed should also be documented.

Remember the Lawyers

Over the years we’ve worked with litigation attorneys who have shared some “flash points” with us about notes and other workpaper matters that can come back to haunt the auditor.

One key point is to be sure to avoid any extraneous or irrelevant comments on the work papers that could turn up to bite you later. You want to avoid leaving comments like “the client’s books are a complete mess” or “these expenses seem questionable.”

Also beware of statements that discredit the auditors’ work, like “close enough for government work.”

Don’t leave personal files containing memos, schedules and other matters related to an engagement, or superseded or outdated workpapers.

Properly prepare workpaper files by initialing and dating each audit program step. Sign off any audit program step determined to be not applicable “N/A,” or as not considered necessary “N/C/N”, followed by an explanation.

Any “Open Items Lists” should be reviewed and any conclusions regarding unique issues should be thoroughly documented. Additionally, time budgets explaining any overages and underages should be maintained, and the completion date should be documented.

Professional Standards require that workpapers should be retained for a minimum of five years from the report release date — although practice, legal, regulatory, or other factors may dictate a longer retention period. You should also consider the requirements by your State Board of Accountancy.

Don’t Forget Your Independence

The AICPA Code of Professional Conduct requires auditors to be independent in both fact and appearance. Auditor independence issues can be classified into four high-level areas:

Financial interest
Family relationship
Management function
Management decision making

If you plan to perform permissible non-attest services, the audit client must first agree to make all management decisions and perform all management responsibilities.

This begins with designating a person with suitable skills, knowledge, and/or experience (SKE requirement) — preferably within senior-level management — to oversee the performance of the permissible non-attest services.

The client must evaluate the adequacy of and accept responsibility for the results of the non-attest services, as well as establish and maintain internal controls, including monitoring ongoing activities.

Auditors should exercise caution when it comes to matters that can raise red flags about their independence in a peer review or in litigation. Areas of concern include:

Providing multiple non-attest services without adequate firm safeguards
Significant concentration of revenue coming from one audit client
Taking on management responsibilities
Providing consultation that goes beyond routine audit advice

Also be wary of inadvertently engaging in other non-compliance activities like performing non-attest services for a company before it becomes an attest client; loaning staff members to an attest client; certain mergers or purchase of a CPA firm; employment of, or association with, an attest client; performing attest services for a client with unpaid fees; and engaging a client employee.

Finally, other red-flag issues to consider include having a financial interest in an attest client and its affiliates, the adequacy of the fees charged, and the existence of a group audit.

Shake It Off

Mon, 09 Dec 2024 13:30:02 GMT

Conquer your fear of public speaking and present like a pro

Do you have glossophobia? It’s the fear of public speaking, and the chances are pretty good that you have it. Surveys indicate that few businesspeople are immune to the fear of public speaking, with between 72 to 75 percent of the population admitting they have at least a mild fear of speaking in public.
Public speaking skills are critical for CPAs, because they often need to present information and deliver speeches at events like board meetings, CPE conferences, and CPA chapter meetings. Speaking at such events is an excellent way to boost your business and build relationships within the industry.

If one of your goals for 2025 is to book a speaking engagement, but fear is holding you back, follow these tips to get prepped.

Practice. If you’re preparing a speech or presentation, practice it on small groups before you deliver it. Start by talking to a few colleagues and friends and build up from there to elevate your confidence. Ask listeners to critique you, and take their constructive criticism. You also might consider taking a video of yourself delivering the speech. When you rewatch the video, don’t just listen to what you said. Critique your nonverbal delivery, including your posture, movements, and whether you make eye contact with the (fake) audience. Also look out for repetitive movements or distracting habits, such as spending too much time looking at the screen.

Tailor the speech to your audience. One of the most important ways to assure success is to create a connection with your audience, which starts with understanding their needs and preferences. Take some time to research the audience you’ll be speaking in front of so that you can anticipate their questions and concerns before you take the stage. Understanding who you’ll be speaking to, and their level of expertise with the subject matter, will guide you to use appropriate language and stories that will resonate with them. Example: If you’re presenting to CEOs, you’ll likely strike a more formal tone than say, a group of young professionals, who might appreciate a more relaxed tone.

Get training. Consider joining a group like Toastmaster International, which offers opportunities to hone your speaking skills in a friendly environment. Or, sign up for a local public speaking class to further your skills. Even when you’ve overcome your fear of public speaking, strive to continue to improve. By studying your favorite speakers, you can gain insight into what makes a successful speech and develop your own techniques for engaging your audience. Many TED Talk presenters are masters of public speaking, and you can also find examples of accomplished speakers through Toastmasters. Pick a few of your favorite public speakers and attempt to discern what makes them great. For instance, former President Barack Obama has been heralded as an excellent speaker in part because he has a calm, deliberate speaking rate and pauses as he takes the audience into a deeper, engaging conversation. Motivational speaker Tony Robbins, on the other hand, engages audiences with his high energy level and powerful storytelling. Pick a style that works for you and practice it.

Don’t sweat it. Remember, nervousness is normal as you’re getting ready to hit the stage. Don’t be too hard on yourself if you find your voice quivering or your palms sweating. And if you make a mistake or don’t wow the audience your first time around, don’t despair. Public speaking gets easier over time, with practice. Keep at it: Once you get comfortable in your own skin, you’ll be impressing audiences in no time.

Collemi Consulting leverages nearly three decades of experience to provide trusted technical accounting and auditing expertise when you need it the most. We regularly work with CPA firm leadership to help them develop and deliver the right training programs for their teams. To schedule an appointment, contact us at (732) 792-6101.

Hear, Hear!

Wed, 04 Dec 2024 15:15:00 GMT

Boost your business by becoming adept at active listening.

43:57.
According to an analysis of thousands of sales calls conducted by Gong Labs, a data services firm, that’s the talk-to-listen ratio of the nation’s top sales performers. In other words, they listen more than they talk. In the study, salespeople who focused less on sales pitches and more on active listening to uncover their clients’ pain points were selling at 120% above their quota.

Here’s another compelling statistic: More than 64 percent of HR professionals believe that active listening is the most critical leadership skill managers can possess, reports a study from the Society for Human Resource Management.

Active listening isn’t just a key skill for salespeople and CEOs: CPAs need to hone their listening skills so that they can fully understand their clients’ concerns and goals, ultimately leading to better client relationships and more effective service delivery. Listening also helps CPAs gather all necessary information to make decisions and identify potential issues that clients might not explicitly state. In addition, listening well is also critical to boosting productivity, reducing mistakes due to miscommunication, spurring problem solving among team members, and more.

So what is active listening? Harvard Business Review defines it as “when you not only hear what someone is saying, but also attune to their thoughts and feelings.”

Here are four strategies to hone your active listening skills:

1. Stop talking. Next time you’re in a conversation, try to talk less and listen more. You don’t have much to gain from the conversation if you’re the one talking all of the time. Avoid the temptation to fill up pauses in the conversation with words. Often, such pauses give the other person more time to think and formulate their responses, which provides a more fruitful exchange.

2. Ask good questions. Show the person you’re conversing with that you care what they have to say by asking questions that reveal your interest. Avoid “yes” or “no” questions, as they tend to limit the conversation. If you’re talking to someone you know a little bit about, prepare for your meeting with some conversation-starters that relate to their hobbies or interests. People like to talk about themselves, and by establishing a friendly rapport at the start of a conversation, they’re likely to open up more. If you’re attempting to converse with a complete stranger at, say, a networking event, come prepared with questions designed to help the two of you find common ground.

3. Pay attention to visual cues. A great deal of communication is unspoken, so observing nonverbal cues can help you understand what the speaker is really thinking. For instance, if the person is crossing their arms or won’t make eye contact, they’re likely not being forthcoming or don’t have an interest in speaking with you. Make sure your own body language is welcoming by maintaining eye contact, nodding your head when appropriate and mirroring the speaker’s facial expressions to show understanding. Avoid fidgeting or staring at your watch or phone.

4. Summarize and validate. Restate the speaker’s key points in your own words without altering the meaning or tone to show that you’ve been paying attention. This may seem awkward at first, but saying something like, “Sounds like you are saying. . .” lets the person know you’ve been paying attention — and allows them to correct you if you’ve misunderstood something they said. It also helps the person feel validated -— which will go a long way to building your relationship.

Collemi Consulting leverages nearly three decades of experience to provide trusted technical accounting and auditing expertise when you need it the most. We regularly work with CPA firm leadership to help them develop and deliver the right training programs for their teams. To schedule an appointment, contact us at (732) 792-6101.

There’s Only One Year Left to Implement the PCAOB’s New Quality Control Standards

Mon, 18 Nov 2024 21:38:58 GMT

ADDITIONAL GUIDANCE: Since this blog was first published, the PCAOB released two new guidance documents. The Nov. 26 updates can be found here:

An additional overview of the requirements of QC 1000 and staff guidance for firms about how to comply with the standard.

This document provides additional staff insights on scope and applicability, responding to engagement deficiencies, and documentation for AS 2901, Responding to Engagement Deficiencies After Issuance of the Auditor’s Report.

The Public Company Accounting Oversight Board (PCAOB) recently announced a new set of quality control standards designed around a risk-based approach. And there’s only one year to design and implement them.

The PCAOB’s new QC 1000 standard is more than two decades in the making, as it replaces the quality control standards it adopted on an interim basis back in 2003 from the American Institute of Certified Public Accountants (AICPA). The new standard is intended to make independent registered public accounting firms significantly improve their quality control (QC) systems.

QC 1000 applies to all PCAOB-registered member firms, with more extensive requirements for those that audit more than 100 issuer clients annually. It has been approved by the U.S. Securities and Exchange Commission (SEC) and goes into effect on December 15, 2025.

The new requirements and the work required to implement them will be extensive, and the larger public accounting firms require external oversight of the QC system. Therefore, it is strongly recommended that firms do not put it off until the last minute.

At its core, the new standard is intended to enable firms to identify their specific risks and design a quality control system including policies and procedures to guard against those risks. The overall goal is to establish what the PCAOB calls “a continuous feedback-loop for improvement.”

In this, the new standard differs from the International Auditing and Assurance Standards Board’s (IAASB) International Standard on Quality Management No. 1 (ISQM 1) and the AICPA Statement on Quality Management Standards No. 1 (SQMS 1). An extensive but not comprehensive comparison document of the three standards may be found here, but is presented only as a reference tool.

New requirements

QC 1000 has requirements that do not appear in other QC standards. They can be more prescriptive or more specifically tailored to the U.S. legal and regulatory environment.

There are 10 main areas in which the QC 1000 standards go beyond other, existing standards. These are:

Evaluation and Reporting: QC systems must be evaluated annually and reported to the PCAOB. They must be certified by specific individuals with responsibility and accountability for the firm’s QC system.
Governance and Leadership: Firms must create and maintain clear lines of responsibility and supervision. Larger firms must have outside oversight and a confidential complaint system.
Ethics and Independence: Quality objectives must be tailored to the U.S. regulatory environment. Larger firms must implement an automated system for identifying securities investments that could impair independence.
Monitoring and Remediation: QC 1000 divides monitoring into engagement and QC system levels. Engagement and QC deficiencies are defined, including requirements for their determination. Larger firms must (and smaller ones should) monitor in-process engagements.
Quality Objectives: The firm’s personnel must comply with its policies and procedures
Information and Communication: Quality objectives for communication with external parties are established at the firm and engagement level. Communication of the firm’s QC system’s policies and procedures must be communicated in writing.
Resources: The firm’s personnel must adhere to standards of conduct. Policies and procedures must address both enumerated and circumstance-specific competencies. Mandatory training, licensure and technological resource requirements are established
Risk Assessment Processes: Quality risks must be identified and assessed annually.
Roles and Responsibilities: A single person must be assigned responsibility for each role and responsibility in the QC 1000 standard.
Documentation: With respect to the QC system’s operation, documentation that allows an experienced auditor to evaluate the operation of quality responses must be provided. Documentation must be retained for at least seven years.

That’s not an exhaustive list, but it does give an indication of how much work will be involved. And it’s happening at the same time as the AICPA extensive new Statements on Quality Management Standards (SQMS) requirements are coming into effect .

Time’s running out on preparing for the new Quality Management Standards!

Thu, 10 Oct 2024 15:00:25 GMT

The American Institute of Certified Public Accountants’ (AICPA) new Quality Management Standards have been out for some time, and you can’t wait to read it.

That’s not a prediction. It’s a warning.

The new standards have to be in place and in use by December 15, 2025, and getting into compliance is not something that can wait until the last minute.

Yes, that’s more than a year away, but according to the AICPA, you should have started working on it two years ago.

You probably know the new Statements on Quality Management Standards (SQMS) is out there, but not just how much effort coming into compliance will take. That applies to sole practitioners as much as it does to medium-sized and large public accounting firms.

The new SQMS is what we call “thinking standards” — you have to really think it through and customize it for your attest practice, based on things like the type of clients you have and the services you provide.

It’s not just new requirements and changes in the way you do things. The new SQMS takes an entirely new, risk-based approach to quality, with two completely new components: Risk Control, and Information and Communication.

Risk and Information

Under the new risk assessment process, firms must establish specific quality objectives. They must “identify and assess quality risks, and then they must design and implement responses to those risks that are tailored to the firm’s unique circumstances.”

Information and communication is the second entirely new component of the new SQMS. It requires the establishment of processes that support the SQMS, including the use of reliable internal and external sources of information, and the creation of a culture that supports and reinforces the responsibility for sharing information with colleagues and the firm.

This information must be communicated in an understandable and actionable manner to internal personnel, service providers, and external sources as required.

Specific quality objectives must be created for each of the eight SQMS components:

● Risk control

● Governance and leadership

● Relevant ethical requirements

● Acceptance and continuance of client relationships and specific engagements

● Engagement performance

● Resources (formerly human resources)

● Information and communications

● Monitoring

The other six components have also changed under the new SQMS, several dramatically.

Changes Throughout

The leadership responsibilities for quality within the firm component, for example, is now Governance and leadership. It includes a new and more robust focus on the role these two elements play in establishing and supporting an environment, and establishing a culture, that supports the SQMS. Leaders are now not only responsible and accountable for quality, but are expected to demonstrate a commitment to quality through their actions.

Relevant ethical requirements are less prescribed under the new standards, but have a new focus on responsibility and on ensuring that others involved in the SQMS or in performing engagements understand and meet those requirements.

The acceptance and continuance of client relationships and specific engagements has a new emphasis on professional standards and the integrity and ethical values of the client. It also highlights the need to ensure that financial and operational priorities don’t influence acceptance and continuance judgements.

Engagement performance has a new focus on an engagement partner’s oversight and involvement. There is also a new emphasis on the exercise of professional judgment and skepticism.

Resources is no longer prefaced by “human” and now has new requirements revolving around technological and intellectual resources in the SQMS. Other requirements relate to the competence and commitment to quality of personnel, and bringing in outsiders to fill any personnel gaps.

Finally, the Monitoring component has a new focus on the firm’s remediation process, and offers expanded and enhanced guidance throughout. One aspect is a new requirement that firms establish policies and procedures that address the objectivity of the monitors. Monitoring now also includes a new term, findings, that focuses on any deficiencies that exist. The firm must “evaluate the severity and pervasiveness of identified deficiencies using a root cause analysis,” and design appropriate remedial actions.

Get Going

The end of that three-year time frame suggested by the AICPA for creating and building out the new Quality Management Standards is now just a year and a quarter away, and firms have three responsibilities between now and December 15, 2025.

The first, of course, is to continue using the extant standard (Statement of Quality Control Standard (SQCS) No. 8, (Redrafted) until your firm is ready to implement the new requirements.

The second is to perform the risk assessment and gap analysis, and then design and implement the new standards.

Finally, firms need to consult with their peer reviewer before final implementation.

If you haven’t started yet, that’s a lot of work for the next 15 months!

Then there’s one more year, until Dec. 15, 2026, to carry out the first annual evaluation of your new quality management system!

Beyond the Basics

Tue, 24 Sep 2024 15:59:35 GMT

Mastering these three soft skills will help you take your accounting career to the next level

The accounting profession moves at lightning speed. Whether you’re an entry-level staff, a seasoned professional or a partner, you need to make an effort to stay on top of the trends, stay up to date with the latest accounting & auditing rules, regulations and standards; and comply with state board of accountancy licensing requirements.

But your training shouldn’t stop there. Even if you’re up to date with required continuing professional education (CPE) credits and can recall complex Professional Standards and Accounting Standards Codification guidance with your eyes closed, there’s plenty you can do to further your skills — and your career.

In a recent study by the Society for Human Resource Management, 97% of employers noted that soft skills were either as important or more important than hard skills. As professionals advance in an accounting career and the world becomes more digital, soft skills become increasingly important and can make the difference between two professionals competing for the same job, promotion or client.

Here are three key soft skills you and your team members should master in order to gain an edge in the marketplace:

Written communication skills. The way you communicate is seen as one of the most integral soft skills for CPAs and accountants. Solid writing skills will not only help you clearly convey technical information to others, but they can help you build client relationships and excel in client prospecting, negotiation and persuasion. One key to good writing for accounting professionals is mastering tone in written communication: You want to maintain a friendly and personable tone that makes the client feel valued. To sharpen your writing skills, consider having a writing expert deliver an in-house CPE presentation on professional writing; or avail yourself to some free writing courses available online or seek out a session on professional writing at an industry conference.

Critical thinking. Accounting professionals who not only look at the problems of the past and find solutions, but who can also anticipate potential problems before they can occur, will have an edge over others in the profession. When working to develop critical thinking skills, it’s important to question how and why processes are done the way they are and contemplate how they might be improved. Developing this type of skepticism will make it easier to ask the right questions and find the "why" instead of just trusting information at face value. To hone your critical thinking skills, try to keep an open mind when approaching a problem, find a mentor with whom you can hash out professional challenges; and keep up to date with professional training opportunities.

An executive presence. Accounting professionals who have strong executive presence are seen as future leaders, as confidence translates to an ability to manage a team or a large roster of clients. These individuals are also perceived as more knowledgeable or the subject matter experts (SMEs) in their field, as they ensure their ideas and suggestions are heard. One way to develop a strong executive presence is to take public speaking courses where you’ll learn to share your ideas with charisma and presence. Another is to speak at and/or regularly attend industry networking events, where you can hone your elevator pitch and get comfortable sharing your thoughts and ideas with authority and conviction. Developing an executive presence is one of the biggest ways you can elevate your career.

While you may be up to date on your required CPE requirements, take some time to sit down and create a plan for developing your soft skills. It will pay off in future dividends!

Collemi Consulting leverages nearly three decades of experience to provide trusted technical accounting and auditing expertise when you need it the most. We regularly work with CPA firm leadership to help them develop and deliver the right training programs for their teams. To schedule an appointment, contact us at (732) 792-6101.

Group Audits Should Be Far More Common Than They Actually Are

Fri, 13 Sep 2024 20:05:23 GMT

Now new rules are adding complexity with ‘referred-to’ auditors and a risk-based approach to planning and performing a group audit

Group audits are needed far more often than you may think.

And now, the new group audit rules are coming, bringing with them a whole new class of “referred-to” auditors.

The American Institute of Certified Public Accountants’ (AICPA) Auditing Standards Board (ASB) SAS No. 149 revises the definition of a “component auditor” and takes an updated risk-based approach to planning and performing a group audit.

But before we get into that, it’s important to say that far too many auditors see a single business or single business line and say, “this is a regular audit” when what’s really required to be a group audit.

Determining what is and what isn’t a “component” can be simple, but it is not always obvious. Depending on how the company runs its operations, you can have a single entity, and yet have multiple business activities inside of it that requires a group audit.

Too often, auditors miss that if they are dealing with a single entity — if they don’t have a consolidation of two or more subsidiaries staring them in the face. The key is to look at business activities first and determine if they are significant in terms of dollar amounts, or materiality, or if there’s a high risk in that part of the operations. Follow the flow of the numbers!

You have to stop and ask yourself, does the company have multiple product lines, service lines, branches, or anything else where the CFO and the CEO of a company manage their operations by tracking the performance of those multiple product or service lines? Are there multiple locations or divisions?

Auditors are required to use professional judgment to determine whether a business activity represents a component, regardless of whether it is a separate legal entity.

Enter the new standards

The new part of what’s going on is adding a twist to group audits. Along with the work of component auditors cited — for whose work the group auditor is responsible — there’s a new category: Referred-to Auditors

At the simplest level, referred-to auditors are in effect secondary auditors, brought in to issue their own opinion on a particular part of the operations that the group auditor will reference in their work. The new group audit standards make clear that the work of the referred-to auditor is relied upon in the final group audit, but was not done by the group auditor.

Referred-to auditors are not component auditors under the terms of SAS No. 149, Special Considerations — Audits of Group Financial Statements (Including the Work of Component Auditors and Audits of Referred-to Auditors) .

In effect, it tells group auditors to say very clearly, “Hey, we didn’t look at this part of the operation” but we are referring to and relying upon the opinion.

SAS No. 149 also revises the definition of component auditors to make clearthat they are part of the engagement team, whereas referred-to auditors are not.

Issued in March 2023, SAS 149 goes into effect for audits of group financial statements for periods ending on or after December 15, 2026.

Getting Risky

That’s not the only change. The most significant change ushered in by SAS No. 149 is that it provides an updated risk-based approach to planning and performing a group audit.

The existing standard requires a group engagement team to identify significant components at which to perform audit work.

However, SAS No. 149 directs the group auditor to use professional judgment in determining the components at which to perform procedures, based on assessed risks.

Just as they are required to use professional judgment in determining what should or shouldn’t be a group audit.

Accounting, Auditing and the Coming Wave of Crypto

Tue, 23 Jul 2024 17:01:49 GMT

Cryptocurrency is burrowing deeper and deeper into the U.S. and international banking and finance system, and that means auditors and accountants need to understand crypto and the technology underlying it. Or at least know how to find reputable and knowledgeable experts who do understand it.

One of the most important things to understand is that crypto is complex and that once you get past bitcoin and ether, there are several hundred tokens large enough to be called mainstream (and tens of thousands in all) and clients can use them in a wide variety of ways.

As an auditor, it’s vital to know who your client is and what they are doing with that token. Is it an investment? A holding? Is it used for payments? Is it a cost? It all depends on what your client is using it for. Beyond that, are they incorporating blockchain technology into their systems, and if so are they using public or private blockchains? The differences can be dramatic.

The first challenge of accounting and auditing crypto clients is knowing what you don’t know. It’s important to recognize the risk of overconfidence in deciding whether to accept a client that is using cryptocurrencies or blockchain technology in their operations

The FASB Chimes In

In December 2023, the Financial Accounting Standards Board (FASB) issued standards on Accounting for and Disclosure of Crypto Assets effective for all entities for fiscal years beginning after December 15, 2024. Crypto assets must be measured “at fair value each reporting period with changes in fair value recognized in net income.”

It also requires “disclosure about significant holdings, contractual sale restrictions, and changes during the reporting period.”

The key difficulty for auditors and accountants is going to be establishing that fair value, as the price of crypto assets can and generally does shift wildly — even relatively stable bitcoin regularly fluctuates as much as 5% to 10% on a weekly, and sometimes daily, basis.

Most of these tokens are not going to be Level 1 on the hierarchy of fair value. A lot of the activity for these types of tokens is probably going to be Level 2 or Level 3. You have to get experts to come in and help you.

While the top exchanges and crypto asset price-tracking websites can offer solid numbers, even they tend to differ somewhat. But you’ll need to look at several of the most advantageous markets to get an idea of where the range is.

Which leads to a second big difficulty: There are many exchanges with shaky if not shady numbers, due to factors ranging from widespread wash trading to flat out fake volume, to say nothing of other forms of market manipulation.

Challenges of Auditing Crypto

At the highest level, blockchain technology isn’t that difficult to grasp, but crypto gets staggeringly complex fairly quickly. You can’t do it alone.

One challenge is that auditors and accountants with experience and expertise in the field are in high demand. Finding those experts takes work, so obtaining expert training and education for auditing staff is a top priority. It’s important to realize that many of the experts have not gravitated towards the larger public accounting firms. A number of small and mid-sized firms have built niches in the field.

Look for accountants and auditors who are already dealing with actual transactions and clients, and even those involved with industry organizations or in the policymaking that’s going on in the U.S. and EU.

A second challenge is that the rules are not all that clear. In the U.S., the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) are attempting to regulate crypto under existing law while Congress works on crypto-specific bills. Regulation by litigation remains a common industry complaint. The EU is ahead, with the European Securities and Market Authority’s (ESMA) just now implementing the Markets in Crypto Assets (MiCA) regulations that came into effect on June 30.

A third challenge is understanding what the client is doing. What types of crypto they are using and how are they using it? Are they working with public or private blockchains? Are they holding crypto or using it for transactions? What type of internal controls do they have? How are they safeguarding the private keys that control their tokens—which are, after all, bearer instruments?

There are other complexities. The pseudo-anonymity of blockchain users can cloud the identity of developers and investors, including perfectly respectable ones. Which doesn’t help in a field in which criminal involvement with crypto remains a substantial problem, as does theft by hackers.

In conclusion, it’s worth noting that plenty of companies inside the blockchain and crypto industry itself say they have trouble finding auditors and accountants with the necessary expertise. Becoming one of those experts requires investing time and money in education about a field in which the rules are still being written and the technology keeps growing. But if you are able to accept those clients, it’s a wide open field.

Collemi Consulting leverages almost three decades of experience in providing trusted technical accounting and auditing expertise when you need it the most. Salvatore A. Collemi, CPA, Managing Member & Founder, is regarded as an industry leader and subject matter expert by various organizations and media outlets. To schedule an appointment to see how we might work together, contact us at (732) 792-6101.

The Different Types of Cryptocurrencies:

● Payment tokens like bitcoin (BTC) have an arbitrary and fluctuating value, but are intended to be used for payments. Although the number of merchants accepting crypto directly is small, payments firms like Mastercard, PayPal, Square and Stripe all have the infrastructure to support it.

● Stablecoins like No. 1 tether (USDT) and No. 2 USD coin (USDC) are, developers say, backed one-to-one by dollars and cash equivalents securities like Treasury Bonds. These tokens are at the core of most crypto transactions: They are used for buying and selling most of the 22,000 or so cryptocurrencies, parking funds intended for crypto investment, and as a payment token. (Complex and dangerous algorithmic stablecoins are unbacked — a whole different beast.)

● Utility tokens like the No. 2 blockchain Etherium’s ether (ETH) have a use, like paying for a transaction, accessing a service, or voting on the governance of a blockchain. They are generally capable of using self-executing smart contracts .

● Security tokens account for almost all cryptocurrencies except bitcoin and ether according to the SEC, which deems almost all to be securities. Industry lawsuits disagree.

● Nationally issued Central Bank Digital Currencies (CBDC) are being at least studied by more than 100 central banks, including all of the major ones, the Bank for International Settlements (BIS) said in June . CBDCs are gaining ground in part as a way to stave off the potential for widespread use of privately issued stablecoins by consumers.

● Memecoins are jokes turned into value, with Elon Musk-favored Dogecoin’s market cap of nearly $18 billion based on a Shiba Inu dog gag gone viral.

● NFTs are non-fungible tokens that don’t meet the FASB’s definition of a crypto asset, generally hosting art, video or other unique content. That said, they can also be loaded with securities and with fractional ownership shares — real-world art and real estate have been tried, but without much traction so far.

Get Savvy with Social

Mon, 24 Jun 2024 16:29:22 GMT

It’s no secret that accountants and auditors tend to lag behind other businesspeople when it comes to utilizing social media for business. One reason: Some accounting professionals believe engaging in social media is a waste of valuable time: Especially during busy season, they may argue, it’s hard to justify spending time online while juggling tight deadlines.

Newsflash: Engaging social media is not a waste of your time; we promise you that. Collemi Consulting has personally interacted via social platforms with hundreds of accountants and auditors of all backgrounds and levels of expertise, and we can attest to the fact that many of these exchanges have proven to be very beneficial, helping us to win new business, meet new contacts, educate our peers, and stay on top of trends and new ideas in the industry.

Here how to maximize your social media efforts — and gain more exposure for you and your business.

Have a professional presence.

Whether you’re using LinkedIn, Twitter or another social media platform, put some thought and effort into your profile page so people who come across it will want to connect with you. For instance, if you’re creating a LinkedIn page or profile, include a professional photograph and highlight your background and depth of experience. Use key industry buzzwords that highlight your strengths and expertise so that potential contacts can find you.

Share your knowledge.

At Collemi Consulting, we make it a point to follow certain regulatory authorities in the industry that create the rules and standards, and we’re always passing along new information to our LinkedIn followers. Sometimes we’ll share an article highlighting a new standard or we’ll throw out a question about a challenging auditing procedure and see where people are struggling. Whatever information you choose to share, consider changing up how you share it to keep followers engaged. For instance, in lieu of posting an article on a new accounting standard, you might create a YouTube video explaining it or show a graphic that lays out the critical points. The purpose of these types of posts is to provide value to people and spark conversations. You’re not just throwing out information; you’re starting a discussion.

Comment on other people’s posts.

One of the best ways to engage with others on social media is to put in the effort to really get to know people. It’s not magic; you just need to be genuine. At Collemi Consulting, we like to see what our followers are sharing on LinkedIn, and we’ll often jump into a discussion on one of our connection’s pages. Some social media experts recommend this rule of thumb: Try to comment on at least five other posts for every post you publish yourself. Remember, social media is a two-way street: You’re looking to have an exchange of ideas that will lead to a professional relationship.

Don’t do generic reach-outs.

One mistake we often see is accounting professionals who blindly send messages to potential contacts on LinkedIn or other social platforms without first establishing a relationship. If you do this, you’re likely to be ignored. It goes without saying that you shouldn’t send salesy, “cold call”-type messages to people with whom you want to connect on LinkedIn and similar outlets. If you really want to make a positive impression on a potential new connection, it’s important to personalize your request by referencing a recent post the person published or mentioning that the two of you recently attended the same conference. Making a personalized effort can help you stand out in a sea of generic DMs.

Don’t post and ghost.

Platforms like LinkedIn thrive on engagement, so it’s critical that you’re active on the platform, especially in the first few hours after posting, to respond to comments and engage with other people’s posts. If you wait more than a day or two to respond, the conversation will likely be forgotten, and the potential connection may be lost forever.

Cultivating Connections

Mon, 22 Apr 2024 20:29:51 GMT

Follow these strategies to hone your face-to-face networking skills.

Here’s a sobering statistic from Harvard Business Review: Americans’ professional and personal networks shrunk by 16% during the pandemic as we shifted our attention away from meeting new people and focused on strengthening relationships with family, friends, and only our closest colleagues.

Now, with lockdown as a distant memory, many of us have grown rusty at face-to-face networking. Whether you’re a networking pro who hasn’t been at it in awhile, or you’re a networking newbie who isn’t sure how to start building professional connections in the accounting & auditing industry, there’s no time like the present to hone and strengthen your skills.

Here are some strategies accountants and auditors can use to build their networking muscles — and leave a lasting impression on future business contacts.

Work the Room

Face-to-face networking is critical for meeting new contacts, so make it a point to attend in-person gatherings in the coming months that are likely to include people with whom you can add to your business network. Industry conferences are ideal, but local events that attract businesspeople in your area also might prove to be valuable. But don’t go in cold. It’s important to hone your elevator pitch in advance. A solid elevator pitch summarizes your business in a minute or less in a way that anyone could easily understand. Example: At Collemi Consulting, our elevator pitch is basic and to the point: “We’re the auditors’ auditor. We realize that auditors need help, too, and we’re there to support and protect them.” Often, this simple pitch is intriguing enough to the other person that it leads to a bigger conversation.

Once you’ve successfully honed your pitch, it’s time to work the room and try it out. This may be intimidating if you don’t know many people at the event or attendees are already grouped up talking with friends and associates. One smart strategy is to try to find someone you already know and join their conversation circle to let them help you “break the ice”. If you’re flying solo, you might casually eavesdrop on a nearby conversation and politely jump in by saying something like, “I couldn’t help but overhear your discussion about . . .,” and then contribute a thoughtful idea or premise.

Once you’re part of the discussion, it’s important to read the room and discern whether or not they’re interested in what you have to say. Ideally, your casual conversation will lead into someone asking you, “What do you do?” or “Tell us more about your company.” Then, you can respond with your well-crafted elevator pitch.

Leverage Speaking Opportunities

At Collemi Consulting, we’ve found one of the best ways to expand our roster of clients is by volunteering to be an expert speaker at accounting & auditing industry conferences. But don’t just show up and deliver your speech. Do some groundwork beforehand to find out who’s going to be part of the audience and how you might connect with them. Reach out to the conference organizers beforehand to see if you can get a list of attendees so you can look them up on LinkedIn and create a target list of people you want to meet with while you’re there.

If you’re not speaking at a conference but want to maximize your chances of meeting people, try to get involved in another way, such as being on the conference planning committee or serving as a sponsor. If attendees recognize you as someone who’s part of the event, it adds instant credibility, and they’ll be more likely to want to get to know you.

If face-to-face networking still seems a bit overwhelming, you may take solace in the fact that it’s a skill that takes time to master. You don’t have to be perfect at first; make an effort to get out there, put your best foot forward, and know that it will get easier over time. If anything, you can always bring a “second in-command” to keep you company!

Training Time

Wed, 03 Jan 2024 15:21:59 GMT

Many public accounting firms don’t focus enough on training their professional staff on how to properly research. Don’t make this risky mistake!

It’s a problem that we at Collemi Consulting see frequently from a practice management perspective: Many small- and mid-sized public accounting firms simply don’t properly train their professional staff to develop their research skills. This is a big concern. Staffers with heightened research skills are able to work more efficiently without spinning their wheels or wasting valuable time. But unfortunately, many CPA firms are not putting enough emphasis on training employees on how to conduct proper research.

While you can’t expect less-seasoned professionals to know everything, you need to train them in how to quickly get the information they need, from navigating and interpreting the latest standards issued by the Financial Accounting Standards Board (FASB), American Institute Certified Public Accountants (AICPA) and other regulatory and professional standard-setting bodies. Even seasoned professionals should have regular primers on research since the world of public accounting is ever evolving.

Here are a few ways CPA firm leaders can help their professional staff hone-in on their research soft skills and make sure nothing slips through the cracks:

Develop an in-house training program . Successful public accounting firms have intensive soft skills training programs in place that cover research skills. If you don’t have the time or resources to put a formal training program in place — or your firm is too small to merit such a program — consider assigning someone in the firm the task of meeting regularly with employees to cover research basics and creating a plan for each individual to get the specific training they need, whether its in-house or through a trusted outside source.

Pair more-seasoned CPAs with an in-house mentor who can meet periodically with them to cover higher-level research skills. Create a list of your firm’s most experienced CPAs and note areas in which they have the most expertise. Provide new staff with a “cheat sheet” listing who they can go to for additional help and guidance on various technical topics.

Outsource training to a trusted partner . There are numerous reputable independent training providers available to help professional staff hone their research skills. For more specific and customized training, consider working with an experienced industry firm to analyze what’s missing in your training program and determine how you can fill the gaps.

Collemi Consulting works with CPA firms and organizations that support the profession to help determine training needs and execute customized programs. Salvatore A. Collemi, CPA, has served as a former regulator, standard-setter, external auditor and technical partner at leading institutions such as the U.S. Securities and Exchange Commission (SEC) and AICPA. He has a keen understanding of the mindset of regulators and standard-setters and often works with accounting firms to develop robust training programs.

The bottom line? It’s critical to start thinking about how to train both new and seasoned professional staff on how to hone their research skills. Protect your practice and clients — as well as your firm’s reputation — by investing more in more soft skills training today!

Collemi Consulting leverages nearly three decades of experience to provide trusted technical accounting and auditing expertise when you need it the most. To schedule an appointment to see how we might work together, contact us at (732) 792-6101.

Hook 'em! How to Deliver More Compelling Presentations

Thu, 21 Dec 2023 20:30:47 GMT

Prepping to give a presentation? Here’s a quick trick: Make sure your introduction is attention-getting, and you’ll help ensure your audience members are thoroughly engaged until the very end. If you’re giving a slide presentation, that means that your first three slides are critical. A recent survey of businesspeople by Storydoc, a business presentation company, revealed that 80 percent of audience members who are engaged in the first three slides of a presentation will likely stick with you until the end of your presentation. That’s critical, considering another Gallup study that revealed that 60% of businesspeople admit to being “indifferent” to presentations, while another 11% say they’re “actively disengaged.”

So, what to include in those first three slides? The best strategy is to start off with a hook: an eye-catching photo, an impressive number, an agonizing problem that members of the audience are likely to face, or a shocking statistic. Adding that hook toward the beginning of your presentation will help reel the audience in.

Here are some additional presentation best practices that we at Collemi Consulting recommend:

Know your audience. Understanding who comprises your audience is critical so that you can ensure you’re covering the material that matters the most to them. If you’re speaking at a conference or training event, get a list of attendees ahead of time and see who they are and where they’re from so that you can get an idea of their background. If it’s possible to communicate with attendees beforehand, send them a note introducing yourself and ask them if there are specific issues, they’d like you to touch on during your presentation.
Ask questions. If you don’t interact with your audience at the beginning of your presentation, people will settle into a passive “TV-watching” mode, and it will be difficult to keep them engaged. And asking questions can also help you zero in on what matters most to the audience. For instance, you might throw out a question like, “What keeps you up at night most, XX or XX?” (reference specific challenges). Or, ask people to raise their hands if they’ve struggled with a specific obstacle. Then, you can be sure to address the challenges that most audience members indicate they’ve faced. Another way to keep people engaged with questions is by throwing out “trivia” questions related to specific new accounting standards or something else that pertains to the content you’re covering. If you make participants feel like they’re part of the presentation, they’ll be much more likely to pay attention — and retain the information.
Add visual appeal. While your presentation is likely filled with a lot of important content, it’s critical to remember not to overload your audience with pages and pages of text. Break up slides with text and simple photos or illustrations that support your message. A well-chosen image is a welcome break from text that can grab your audience’s attention and help reinforce your message. You can find professional stock images on sites like Shutterstock.
Provide a next step. Don’t just end your presentation abruptly by thanking people for coming. Close by including a slide that mentions what you’d like the audience to do with the information you shared with them. Perhaps you’d like them to make a list of ‘to-dos’ that will help them implement the information you’ve shared with them. Or maybe you’ll invite them to reach out to you should they need your services. A solid closing will build rapport — and help audience members retain what they’ve learned.

Marketing for Auditors: 4 Savvy Strategies

Mon, 20 Nov 2023 16:17:55 GMT

Want to know the difference between high-growth and average-growth firms in the public accounting profession? Here’s a hint: It begins with the letter “M.”

If you guessed “marketing,” you’re correct.

According to the 2023 High Growth Study by Hinge, public accounting and finance firms grew at a median rate of 11%, lagging behind many other professional services categories. But the study also uncovered that public accounting firms that focus on marketing as a top priority see regular, year-over-year growth of 20% or more!

Here is the good news: You don’t have to be a Big 4 firm with extensive resources to leverage marketing to your advantage. Small-and mid-sized CPA firms, and even sole practitioners, can take some simple steps to differentiate themselves in their respective field. Many auditors & accountants and their firms are missing out on major opportunities to target clients using tools that are right at their disposal.

Here are four strategies to build visibility for your practice and differentiate yourself from your competitors:

Strategy #1—Public Speaking. Landing speaking gigs at industry conferences or on an industry podcasts or webinars are one of the best ways to position yourself and your firm as an expert in the field. Speaking gigs offer auditors a platform to showcase their knowledge, provide insights on relevant topics and establish themselves as an authority in the field while increasing their firm’s visibility. You can use speaking engagements to share best practices, identify emerging trends and offer solutions. To get started, do some research on upcoming conferences in your area where you might offer to contribute. Your State Society and local Chambers of Commerce may also have seminars or online events that offer speaking opportunities.

Strategy #2—Create a newsletter. Some savvy CPA firms create email newsletters that provide valuable and relevant information to clients and prospects. Sending out periodic newsletters helps drive traffic to your website or blog (when you include links to relevant articles or resources), builds credibility by positioning yourself and your firm as a subject matter expert (SME), and encourages social sharing. If your content is engaging, it may prompt subscribers to share it on social media. Your newsletter doesn’t have to be lengthy: Two to three short articles, plus a call to action at the end, is enough to capture a reader’s attention.

Strategy #3—Include lead magnets on your website. Lead magnets are incentives on your website that you offer potential clients in exchange for their contact information. For example, you might offer a white paper you’ve created on an important topic or a PDF that highlights important new information regarding the latest accounting rules. Creating these kinds of lead magnets can help you grow you email list and build a database of potential leads.

Strategy #4—Amp up your social media. You may already be leveraging social sites like LinkedIn to promote yourself or your business, but are you gaining followers and increasing engagement? The best way to grow followers and generate more interaction is to share information of real value to those you want to target. It’s also important to post content frequently and interact regularly with followers. Remember that social media is all about dialogue (not sales pitches!). Approach it as a conversation; post content your followers are likely to share or comment upon, which will extend your reach to their connections. Be generous with your time and advice, and potential clients will want to work with you.

Short on time? Pick one or two of these strategies to focus intently on in the upcoming year; the investment in time will be worth it.

Collemi Consulting leverages nearly three decades of experience to provide trusted technical accounting and auditing expertise when you need it the most. We regularly work with CPA firm leadership to help them reduce risk and maximize efficiencies to grow their attest practices. To schedule an appointment, contact us at (732) 792-6101.

The "Write" Stuff

Mon, 16 Oct 2023 16:55:05 GMT

Strengthen your audit documentation and business communications skills!

Auditors are relied upon for their ability to analyze and audit financial statements and footnote disclosures, but equally as important is their ability to write — and communicate — effectively. Whether it’s preparing audit documentation or replying to a client’s email, the ability to communicate accurately and clearly is key. When performing an audit of financial statements are involved, written proof is always critical, so it’s imperative to be able to communicate these matters in a concise and articulate way in order to satisfy Professional Standards, regulators and standard-setters.

Here are some tips to add polish to two common types of communications auditors use:

The ABCs of Audit Documentation

For auditors, being able to draft audit documentation that can stand on its own without any verbal explanation by the engagement team is the goal. Prepare audit documentation sufficient to enable an “experienced auditor” who has no previous connection with the engagement to understand the nature, timing and extent of the auditing procedures performed, the results of audit procedures and evidence obtained and the significant judgments made and conclusions reached on significant findings or issues. Well-written audit workpaper documentation can be a great asset in enhancing audit quality as well as helping audit engagement teams plan and perform their audits, enable them to demonstrate accountability for their work, and will serve as a record of matters of continuing significance to future audits of the same entry. For each required audit procedure, auditors should document:

Identifying characteristics of specific items tested
Who performed and date of performance
Who reviewed and date/extent of review

Here are some important tips to follow:

Time is of the essence. Documentation should be prepared on a timely basis. The longer you wait, the less information you will be able to recall.

Don’t over-write. Can you have too much audit documentation? Actually yes; it’s very common. Don’t overburden the engagement partner, engagement quality control reviewer, peer reviewer, regulators, standard-setters and others with items that do not support material transactions and testing procedures. And be sure to remove superseded workpapers, open items listings, and items in the trash folder.

Include these essential items. Ensure that your audit workpaper documentation includes:

Overall responses to address the assessed risks of misstatement at the financial statement level
Nature, timing, and extent of further audit procedures
Linkage of procedures with the assessed risks at the relevant assertion level
Results of those audit procedures
Conclusions reached by team
Significant issues, findings, and judgments
Nature of findings or issues discussed
When and with whom discussions took place
Document how inconsistencies were addressed

Be mindful of legal considerations. Avoid including commentary or information that could call the audit into question. For instance, do not make extraneous remarks (example: “This client’s books are a mess!”) or statements that may discredit your work (example: “Close enough for government work!”).

Retention of work papers. In keeping with Professional Standards, workpapers for audits of privately-held companies should be retained for a minimum of five years from the report release date.

Crafting Better Emails

As the most common method of quick communication between auditors & CPAs and clients, emails are often used to respond to requests, ask a quick question or quickly summarize an attachment. The most important thing to remember when writing an email is that people are busy and may receive hundreds of emails. The key to writing an effective email is to tell recipients only what they need to know in as short a manner as possible.

A general rule of thumb is to use the inverted pyramid principle of putting the most important things at the top so they won’t get missed. If you have to write more than a paragraph, consider using bullet points so that the reader can move quickly through the text. To make things easy for the reader, use a strong, descriptive subject line (example: “Filing deadline for the financial statements is October 15th” or “Quick question about your footnote disclosure”) so that the reader understands the importance of the content.

Finally, don’t try to cover too much in one email; you may confuse and overwhelm the recipient. If you find that the email is getting too lengthy, consider cutting it into smaller topic-based emails that get sent to the client at staggered dates. Most importantly, remember that emails become official documents that may be referenced at a later date. With that in mind, pick up the phone if you want to share highly confidential or sensitive information.

Need more help? Invest in your professional development by taking a professional writing course tailored toward auditors and CPAs.

It’s important to remember that the world of accounting and auditing can be daunting for outsiders — even for professional staff with years of experience. As an auditor, you can bridge this gap by ensuring your communications are clear and to the point. Your clients will appreciate that as much as they value your analytical and technical skills.

Keep The “Burnout” at Bay

Tue, 05 Sep 2023 18:36:24 GMT

99%. That’s the percentage of auditors and accountants who report suffering from the “burnout,” harboring feelings of exhaustion, inefficiency and alienation from their jobs and careers, according to a recent study by the University of Georgia and FloQast, an accounting software company.

What’s behind the high number? According to the study, challenges including new regulatory compliance rules, long hours and the shift to remote work. While burnout among CPAs was a growing problem prior to COVID-19, the pandemic certainly exacerbated the issue.

During the off season, it’s important to recharge for next season and put in place some strategies to alleviate future burnout and safeguard your mental health. Here are some ideas:

Conduct a time audit. Are you working as efficiently as possible? If you’re not sure, it’s time to audit your time each week. According to the Paredo Principle, 80 percent of business outcomes come from 20% of the tasks we do. Try keeping track of how you spend your time each week so you can learn which tasks truly require a large investment of your time — and which could be cut back or eliminated altogether. For example, you might discover that time spent with clients produces the most outcomes, while daily and weekly staff meetings without a focused agenda do little to help you achieve your goals and could be reduced.

Set clear boundaries. The shift to remote work has blurred any boundaries between our work lives and personal lives, and it’s up to us to cultivate a healthy balance between the two. As high-achieving professionals, CPAs often say “yes” to nonessential requests or strive to get a project done before its due date. While it’s great to be fastidious, it’s important to step away from work at the end of the day and over the weekend so that you allow yourself time to recover. Take a few minutes to write down some boundaries that you’ll stick to as the season gets into full swing.

Delegate when you can. Because CPAs are often highly conscientious, they end up doing more than they need to. For instance, many spend too much time doing tasks that could be delegated or automated. Take control by focusing on the activities that mean the most to you, and delegate other tasks, such as administrative work, and use accounting software to automate manual tasks.

Use technology to stay focused. There are many technological tools to help you stay on task during the workday so that you can safeguard your free time. For instance, browser plugins like StayFocused, a productivity extension for Google Chrome, helps you stay on track by on by restricting the amount of time you can spend on time-wasting websites. Once your allotted time has been used up, the sites you have blocked will be inaccessible for the rest of the day. Other plugins can help you keep better track of just how well you are able to manage your time. When you’re ready to “turn off” for the workday, consider utilizing “do not disturb” features on your phone or your computer to help yourself maintain a proper work/life balance.

Take regular breaks. When working remotely, it’s important to understand that time away from your home office is critical to your mental and emotional well-being. People who work from a home office are less likely to go outdoors during the day, since you’re not required to commute or go out to lunch. With that in mind, set an alarm to take exercise breaks every few hours and give yourself a dedicated lunch break just like you would if you were in the office. And refrain eating lunch and snacks at your desk. Step away and give yourself a change in scenery. If you’re really feeling stressed, many workplace psychologists suggest taking a 10- or 20-minute catnap (yes, a nap!) during the workday. According to Dr. Sandra Mednick, author of “Take a Nap, Change Your Life,” napping can boost creativity, improve focus and restore the sensitivity of sight, hearing, and taste.

Take a stress test. It’s natural for CPAs to feel stress occasionally, especially during busy season. Burnout is a more serious condition, with symptoms that typically include energy depletion, cynicism, and inefficacy. If you suspect you’re feeling burned out, take notice and identify the root causes. Once you've pinpointed what's contributing to your burnout, you can begin to address the issue.

Be proactive. The early fall is the ideal time to have conversations with your clients’ leadership to plan ahead for upcoming busy season. Schedule a conversation so that both of you can be more prepared for the months ahead. You’ll want to discuss what’s going on with the business and what they’ll need to do to prepare for the attest engagement. This discussion will help set the stage for an effective engagement — and ensure that you’re able to manage your time effectively in the months ahead.

There’s no doubt about it: Busy season is a stressful time, but you can avoid the negative consequences by taking a proactive approach to managing your time, and your stress level.

Collemi Consulting leverages nearly three decades of experience to provide trusted technical accounting and auditing expertise when you need it the most. We often work with CPA firm leadership to help maximize efficiencies and increase realization. To schedule an appointment, contact us at (732) 792-6101.

Each Audit Client Is Unique in Some Regards

Fri, 28 Apr 2023 19:08:46 GMT

Are You Treating Your Audit Approach Accordingly?

There’s a common mistake we at Collemi Consulting see many auditors make time and time again: not appropriately tailoring their audit programs to address each client’s unique situation. Most auditors use purchased programs from independent third-party service providers, or take a cookie-cutter approach to audits. With each client, there are esoteric issues that need to be considered. In addition, each client has unique management and internal controls and financial reporting systems. Using canned audit approaches that are not a response to risk can lead to deficiencies in risk assessment and audit procedures.

In reality, the key to efficient and effective auditing is selecting procedures for each high-risk account and their relevant assertions that respond to its respective risks. Simply put, we should be spending more time auditing higher-risk accounts and less time in responding to the lower-risk accounts.

With that in mind, here are some best practices for tailoring your audit program:

The audit programs for general procedures cover the general steps performed in any audit. Tailoring generally involves removing or adding procedures to fit the specific circumstances of the engagement such as group audits using the work of a specialist, use of a service organization, environmental remediation liabilities, related party transactions.

When tailoring individual financial statement account areas , it’s important to note that the audit programs for individual financial statement account areas are designed to correspond with the engagement team's risk assessments and decisions about the audit approach at the assertion level, as documented on the risk assessment form. On that form, the team documents significant audit areas, the risk of material misstatement affecting relevant assertions for account balances, transaction classes, or disclosures included in each audit area (including fraud risks or other significant risks), the assessment of those risks at the assertion level, the planned audit approach that is appropriately tailored to respond to the assessed level of risk, and the linkage of the assessed risks to the audit procedures that respond to those risks.

When teams determine an account to have either a fraud risk or a significant risk, the engagement team must determine which extended procedures are needed and select procedures that are most appropriate to respond to the risk assessment. Other considerations include:

In selecting appropriate procedures and to show linkage between the assessed risk and the further audit procedures performed to respond to the risk, each procedure on the audit program indicates the assertions that are primarily and secondarily addressed by that procedure.
When selecting extended procedures, the goal is to find the appropriate mix of analytical procedures and tests of details to respond to the risk of material misstatement.

When tailoring your audit program, keep in mind that AU-C 330B.30 requires the engagement team to document the following related to preparing the detailed audit plan:

Overall responses to the assessed risks of material misstatement at the financial statement level.
Nature, timing, and extent of further audit procedures performed.
Linkage of the procedures performed with the assessed risks at the relevant assertion level.
Results of the audit procedures performed, including conclusions that are not otherwise clear.
A description of the nature and extent of planned risk assessment procedures sufficient to assess the risks of material misstatement.
A description of the nature, timing, and extent of planned further audit procedures at the relevant assertion level for each material class of transactions, account balance, and disclosure.
A description of other audit procedures planned to be carried out for the engagement in order to comply with generally accepted auditing standards (for example, seeking direct communication with the client's attorneys).
Planning continues throughout the audit, and performance of risk assessment or other procedures may cause a change in planned further audit procedures.
AU-C 300B.10 notes that the auditor should document changes to the original audit plan.

The bottom line: Every business is unique. Putting together an effective audit program requires CPAs to narrow the audit-related aspects of the client's business down to a relatively fine level so that they can explain to the audit team precisely what they are expected to do. This requires that the planning process be something more than a formality, and that the auditor truly understands the uniqueness of the client's business, the management team and related accounting system and internal controls. As an auditor, you need to continually ask yourself early in the planning stage of an engagement if you have addressed your client’s unique issues. Doing so will ensure that you’ve properly tailored the engagement — and are using your time wisely.

Collemi Consulting leverages more than two decades of experience to provide trusted technical accounting and auditing expertise when you need it the most. We work with CPA firm leadership to tailor their audit programs and checklists to maximize efficiency and minimize risk. To schedule an appointment, contact us at (732) 792-6101.

Differences of Opinion

Fri, 28 Apr 2023 18:41:43 GMT

How to Address an Audit Disagreement

It happens: Differences of opinion can sometimes arise within an audit engagement team. So, what to do if there’s disagreement between the engagement partner and the quality control reviewer — or any members of the team?

Rule number one is that the engagement team should follow the firm’s policies and procedures for dealing with and resolving any differences of opinion. Here are some key steps to take to properly resolve and document an audit disagreement:

Step #1 – If a difference of opinion arises within the engagement team, the disputed issue should first be discussed by members of the engagement team and the partners. Hopefully, the team can resolve the issue swiftly. If both agree that the issue is resolved, no further action is necessary; however, if the issue is not resolved, additional consultation will be required.

Step #2 — If additional consultation is deemed necessary, the issue should be escalated to an individual at the firm who has the appropriate knowledge, seniority and experience regarding the issue in question. Those who are consulted should be given all the relevant facts that will enable them to provide informed advice. If they are able to resolve the issue, no further action is necessary.

Step #3 — If the issue is not resolved by taking this additional step, the issue should be reviewed by an individual outside of the firm who has relevant specialized expertise, such as CPAs at other firms, the AICPA Technical Hotline, AICPA Audit Quality Centers, IFAC and other professional and regulatory bodies that provide quality control services. Again, those consulted with should be given all the relevant facts that will enable them to make an informed decision. In some cases, certain audit or attestation engagements may require the firm to consult with specialists such as actuaries, appraisers, attorneys or engineers. When such consultations are necessary, CPAs must follow the guidance in AICPA Professional Standards and IFAC. If outside experts are able to solve the dispute, no additional action is required.

Step #4 — Keep in mind that consultations that involve contentious or difficult issues should be sufficiently documented to facilitate understanding of the issue for which the consultation was needed; the results of the consultation; the decisions made and the basis for those decisions; and how those decisions were implemented. In addition, it should be noted that the conclusions resulting from the consultation were understood by all the parties involved.

Step #5 — If the difference of opinion is not resolved after all the above steps have been taken, the matter must be brought to the attention of the quality control director (or equivalent), who must resolve the dispute regarding the proper course of action to be taken by the firm on the issue in question. The conclusion reached by the quality control director should be documented in accordance with professional standards.

Step #6 — The firm must not release the report until any differences of opinion are resolved. In addition, any party who disagrees with the final conclusion may document their disagreement with the resolution of the matter.

It’s important to note that the engagement partner is responsible for ensuring that appropriate consultation is undertaken on contentious matters. This person needs to ensure that all members of the team follow the firm’s consultation policies during the course of the engagement; the nature and scope of the consultation are agreed upon; the final conclusions are understood by the party consulted; and such conclusions are implemented properly.

If you’re unsure of how to handle an audit disagreement, there’s no need to go at it alone. Collemi Consulting leverages more than two decades of experience to provide trusted technical accounting and auditing expertise when you need it the most. To schedule an appointment, contact us at (732) 792-6101.

CECL: Get the Conversation Started

Thu, 12 Jan 2023 20:38:07 GMT

2023 is here and all private companies will be required to adopt the new Current Expected Credit Loss Model (also known as CECL). The Financial Account Standards Board’s (FASB) new standard, ASC Topic 326, mandates that by January 1, 2023, private companies will have to adhere to the CECL model, which is based on expected losses rather than incurred losses.

Extant U.S. GAAP required an "incurred loss" methodology for recognizing credit losses that requires loss recognition when it is probable a loss has been incurred. The new standard will require an organization to measure expected credit losses for financial asset measured at amortized cost and held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts . The upshot: Management will be required to consider forward-looking information in its determination of an allowance for credit losses (ACL).

The time is now to be discussing the new standard to your attest clients, as it will significantly change their accounting for credit impairment losses. Although the new standard has a greater impact on banks, most non-financial institutions have financial instruments or other assets (such as accounts receivables, contract assets, lease receivables, financial guarantees, loans and loan commitments, and held-to-maturity debt securities) that are subject to the new standard.

For private companies that have not yet adopted CECL, management, those charged with governance, and auditors need to focus significant efforts on the implementation of the standard to ensure that, among other considerations:

Management is prepared to adopt the standard by the effective date.
Management has identified the credit loss model(s) it will use, understands how the model(s) work, and assessed the historical data needed.
Inputs and assumptions used in the model(s) are reasonable.
Financial statement disclosures prior to the effective date properly address the anticipated effects of CECL.

It’s important to note that the FASB does not require management to use a specific method when measuring their estimate of expected credit losses. Instead, it allows companies to exercise judgment to determine which method is appropriate for their specific circumstances, including the nature of their financial assets. With that in mind, here are some factors to consider when determining what methods to use to meet the new standard:

Management can select from a number of measurement approaches to determine the allowance for expected credit losses.
Some methods project future principal and interest cash flows (i.e., a discounted cash flow (DCF) method), while other methods project only future principal losses.
ASC Topic 326 emphasizes that management should use methods that are “practical and relevant” given the specific facts and circumstances and that the methods used to estimate expected credit losses may vary based on the type of financial asset, the entity’s ability to predict the timing of cash flows, and the information available to the entity.

Since there is no specifically prescribed approach, here are some available measurement approaches to consider:

DCF Method - Expected credit losses are determined by comparing the asset’s amortized cost with the present value of the estimated future principal and interest cash flows.
Loss-Rate Method - Expected credit losses are determined by applying an estimated loss rate to the asset’s amortized cost basis.
Roll-Rate Method - Expected credit losses are determined by using historical trends in credit quality indicators (such as delinquency or risk ratings).
Probability-of-Default Method - Expected credit losses are determined by multiplying the probability of default by the loss given default (the percentage of the asset not expected to be collected because of default).
Aging Schedule - Expected credit losses are determined based on how long a receivable has been outstanding (example: under 30 days, 31–60 days, etc.). This method is commonly used to estimate the allowance for bad debts on trade receivables.

This is only a high-level introduction to the new standard. Transitioning from the incurred loss model to CECL is a large undertaking, and as an auditor, it’s important to evaluate your client’s methodology and processes for estimating expected credit losses to ensure they are compliant. If you haven’t yet had a conversation with clients about how they are going to manage the new standard, now is the time to open the discussion!

Need additional guidance? Collemi Consulting leverages more than two decades of experience to provide trusted technical accounting and auditing expertise when you need it the most. One example: We’ve devoted considerable time over the past year working with CPA firm leadership and their respective clients to navigate ASC Topic 326. To schedule an appointment, contact us at (732) 792-6101.

Setting the Stage

Tue, 20 Dec 2022 21:48:52 GMT

The clock starts now for planning calendar year-end audits. Here’s how to be proactive and prepare yourself for busy season.

Busy season for auditors is just around the corner. The last few months of the year are critical ones for public accountants, because they are the time when you can be proactive in planning audits. A good rule of thumb is that you should spend about 20 percent of your time planning for an audit engagement. That means the time to get started is now! Here are three ways to properly prepare yourself for busy season:

Step #1

Have a sit-down with your clients. Now is the ideal time to have conversations with your clients’ leadership. Schedule a conversation (and take notes!) so that both of you can be more prepared for the months ahead. You’ll want to discuss what’s going on with the business and what they’ll need to do to prepare for the audit. Take this opportunity to convey the importance of management playing an active role in the audit. You can discuss what management should expect and how they should prepare employees to gather information and answer questions in a timely manner. This discussion will help set the stage for an effective engagement.

Step #2

Consider new pronouncements that will affect this year’s audits. It’s always key to assess whether there are significant new pronouncements that will affect the next round of audits. The big news this year is the Financial Accounting Standard Board (FASB) lease accounting standard (ASC 842) will take effect for private companies with fiscal years ending after December 15, 2021. The new standard will, for the first time, generally require companies to bring their long-term lease obligations onto their balance sheets. Certain industries, including telecommunications and real estate, will be severely impacted, but all businesses, large or small, that participate as a lessee in leasing transactions will be affected to some degree.

Now is the perfect time to have a discussion with your clients to make sure they’re up to speed with the new requirements and have been properly implementing them. Unfortunately, the new leasing requirements are too comprehensive for some small and mid-size businesses — particularly those who don’t have an astute Chief Financial Officer on staff — to manage. If you find your client is in a situation where they’ve been procrastinating with implementing the new leasing standards, you need to come up with a game plan to help them without jeopardizing your independence in the audit. In some cases, you may advise your client to secure another partner to help with implementation.

Step #3

Perform interim procedures. To increase audit efficiency, consider performing an interim for the first three quarters of the calendar year. Doing so helps you get a better understanding of your client’s business and related risks, so you’ll better be able to figure out what and where are the key risks that they should pay more attention to when you design audit procedures. An interim audit also reduces the work when the year-end audit comes. For instance, operating expenses might be tested during interim audit for the first nine months, and the rest will be completed at the year-end audit. The upshot? Taking some time to plan for this year’s busy season will save you considerable time down the road — when you need it the most.

Collemi Consulting leverages more than two decades of experience to provide trusted technical accounting and auditing expertise when you need it the most. One example: We’ve spent the past three years working with CPA firm leadership and their respective clients to understand the new leasing standards. To schedule an appointment, contact us at (732) 792-6101.

10 Strategies to Increase Audit Quality

Mon, 12 Sep 2022 16:16:07 GMT

In today’s challenging economic environment, independent auditors — from sole practitioners to the largest international CPA firms — are under a microscope to ensure they are achieving high-quality auditing of financial reporting. CPA firms have recently been in the crossfire of negative results reported by standard-setters and regulatory agencies.

One way to steer your ship clear of these treacherous waters is to increase audit quality across your assurance practice. When independent auditors, regulators and investors refer to the term “audit quality,” most tend to focus on the credibility of the audited financial statements. In other words, did the auditor deliver an appropriate professional opinion that was supported by sufficient evidence and objective judgments? In order to answer that question, we must first identify the key ingredients that drive audit quality:

Leadership and culture of a firm
The skills and personal traits of audit partners and professional staffThe effectiveness of a firm’s audit process, methodologies, policies and tools
The reliability and usefulness of audit reporting
The business and regulatory environment in which the CPA firm and their clients operate
Compliance with applicable independence and ethics requirements from the American Institute of CPAs (AICPA), regulators, standard-setters and state boards of accountancy
Market placement and specialization
Engagement performance, professional skepticism and judgement
Quality control and consultation
The delivery of consistent results

So how can you ensure your assurance practice does not get sued by an audit client, fail an AICPA peer review or face a regulatory enforcement action? Follow these 10 recommendations for boosting the quality of your audit practice:

1. Strengthen the "tone at the top." Firm leadership should:

Ensure that all staff have sufficient time and resources to solve engagement issues.
Demonstrate a track record of consistency on standards-based decisions.
Establish and regularly communicate a formal code of conduct.
Challenge unethical behavior and address instances of non-compliance with the firm’s code of conduct through swift disciplinary actions.
Provide a copy of the firm’s quality control document to all professionals.
Hire, compensate, promote and reward professionals who possess and exhibit high levels of integrity and demonstrate a commitment to quality.

2. Enhance your client acceptance and continuance process. Perform sufficient client background checks. It’s important to only associate with highly ethical clients.

3. Hire or align with experts, specialists and consultants . Have sufficient technical personnel on hand at your firm or have access to external experts, specialists and consultants who can provide you with the appropriate advice when facing challenging issues.

4. Offer high-quality continuing professional education and training. Offer a blended training package to increase competency from a technical and soft skills standpoint. Focus on topics such as:

Independence and ethics
Applying professional judgment, skepticism and objectivity
Firm policies and procedures

5. Establish or outsource a quality control department. If possible, consider investing in or outsourcing a quality control department that will:

Develop accounting and auditing guidance as well as industry-specific guidance.
Perform engagement quality control reviews of high-risk engagements.
Monitor and evaluate the firm’s quality control policies and procedures.
Provide technical consultation to personnel.
Monitor the firm’s accounting and auditing training programs.
Develop assurance policies and procedures.
Participate in a dialogue with regulators and standards-setters when new accounting and auditing standards are being developed.

6. Streamline your audit process. Ensure all engagement teams consistently apply and streamline your audit approach so they can focus on areas of high risk and audit execution.

7. Increase specialization. Consider specializing in a specific industry or niche so that you can focus your attention and build efficiencies to increase engagement realization.

8. Rotate key professionals on engagements. Consider rotating partners, managers and engagement quality control reviewers on a periodic basis to add fresh and new perspectives to your high-risk attest engagements.

9. Join an accounting network or alliance. Consider joining a reputable accounting network or alliance program to collaborate and share with other CPA firms.

10. Incorporate data analytics. With many attest clients processing their transactions electronically, CPAs are getting more involved in data analytics — the art and science of processing “Big Data” to discover and analyze patterns, identify anomalies and extract other important information embedded in data through analysis, modeling and visualization relative to human behavior and interactions. Data analytics can be utilized to enhance audit and review engagements, forensic investigations and consulting engagements, and to assist clients in business decisions. For CPA firms, data analytics is a powerful tool because it can help auditors and accountants achieve 100-percent coverage in substantive testing, which decreases engagement risk while increasing efficiency and realization.

Salvatore A. Collemi, CPA, is the managing member and founder of Collemi Consulting & Advisory Services, LLC. He is a member of the NJCPA Content Advisory Board.

The Time is Now

Thu, 18 Aug 2022 15:08:02 GMT

How to be Proactive with Your Next Peer Review

Unable to properly prepare for your next AICPA peer review during the two-off years can mean a lot more than just the loss of bragging rights: A CPA firm that receives anything less than pass with no findings (a “clean” report) may soon find that existing clients are questioning their relationship while potential prospects are avoiding them.

A clean report assures clients, prospects, regulators, standard-setters and competitors that your firm’s attest practice is performing at a high level and is not required to improve the quality of its services and processes. Simply put, your firm’s reputation is on the line every time you undergo a triennial peer review.

It’s important to get a jump start on preparing for your next peer review. Here are some steps to take to ensure you have a properly designed and effective quality control system in place that leads your firm to receive a pass — with no findings — on your next peer review report.

Establish a culture of quality from day one. A common mistake CPA firms make that can cause them to perform poorly on a peer review is not properly designing, implementing and maintaining a system of quality control. If your system is not properly maintained, the peer reviewers will more likely find reportable issues. In accordance with AICPA’s Statement on Quality Control Standard (SQCS) No. 8, A Firm's System of Quality Control (Redrafted), all CPA firms must establish and maintain appropriate quality control policies and procedures and comply with those policies and procedures to ensure the quality of the professional services they provide to the public.

To make sure you’re following all relevant policies and procedures, there are several publications available from the AICPA that provide guidance, such as Professional Standards, the AICPA Peer Review Program Manual, and the Practice Aids for Establishing and Maintaining a System of Quality Control for a Firm's Accounting and Auditing Practice.

Familiarize yourself with these standards and ensure the auditors/accountants at your firm have the research capabilities and tools to their jobs correctly and adhere to the highest standards.

Plan ahead & stick to deadlines. Your firm’s peer review should be finished by its due date. The firm’s due date is reflected on the letter acknowledging your firm’s original enrollment in the peer review program and in the committee acceptance letter related to your firm’s last peer review. The due date is the date by which peer review documents, including the report and if applicable, the letter of response, should be submitted to the reviewer.

To make sure your peer review is completed on time, you should start the review soon after your firm’s peer review year-end. You should plan ahead so that the review takes place at a convenient time for your firm and to allow your reviewer time to properly plan and schedule your review. For example, if you have a heavy tax practice and your review due date falls between January and April, you should plan to start the review in September or October to make sure the review is completed before your busy season begins.

Make sure that workpapers can stand on their own. It’s critical to ensure that your workpaper files are deemed to be in compliance with Professional Standards. As you assess your workpapers, give them the “5 Ws” test: Do they stand on their own without any verbal explanation, clearly explaining “who, what, were, when and why?” Don't leave a peer reviewer grappling for answers – make their job easier by making sure your workpapers are in order.

Keep up with your internal inspections. During the two off years when the peer reviewer is not up on your doorstep, make sure you're regularly conducting your annual internal inspections so that you can correct any mistakes your firm may be making before peer review time. At Collemi Consulting, we’ve created a “must-do” testing approach to assist CPA firms with an internal inspection process that includes drafting and reviewing your firm’s Quality Control Document to interviewing and evaluating your professional staff.

Here are some examples of the other areas we test during the inspection:

Review a cross section of attest engagements
Test professionals’ CPA licensing
Test professionals’ CPE requirements
Examine firm’s professional literature

Most attest practices we advise get some things right, but almost all of them miss some key points. Common pitfalls include lack of understanding of the auditor independence rules, particularly regarding unpaid prior years’ fees, and not meeting the General Requirements from the Code of Professional

Conduct prior to performing permissible non-attest services for an attest client.
Other missteps include a failure to appropriately modify a report for a scope limitation or a significant departure from GAAP, omissions of required critical reporting elements of applicable standards, and issuing an audit report when the auditor was in fact not independent.

Connect with your peer review team captain sooner rather than later. You should contact your peer review team captain and begin planning the review together early enough, at least six to nine months prior to the due date, to make sure all documents will be submitted to the Administrating Entity (AE) by your firm’s due date.

The peer review team captain will ask for the following items:

The firm’s Quality Control Document.
A list of accounting and auditing engagements for all engagements with periods ending during the year under review (or report dates during the year under review for financial forecasts and/or projections and agreed upon procedures) regardless of whether the engagement reports are issued as well as a description of the approach taken to ensure a complete and accurate engagement listing.
A list of the firm’s professional personnel showing name, position and years of experience with the firm and in total.
A copy of the firm’s documentation maintained since its last peer review to demonstrate compliance with the monitoring element of quality control.

Based on this information, the team captain will make a preliminary selection of the offices and engagements he or she intends to review.

The initial selection of engagements to be reviewed will be provided no earlier than three weeks before the commencement of the peer review. This should provide ample time to enable the firm to assemble the required client information and engagement documentation before the review team commences the review. However, at least one engagement from the initial selection to be reviewed will be provided to the firm once the review commences and not provided to the firm in advance. This engagement should be the firm’s highest level of service and should not increase the scope of the review.

All engagements with years ending during the peer review year (or report dates during the year under review for financial forecasts and/or projections and agreed upon procedures) that are performed and issued by the firm should be available to the team captain at the start of fieldwork.

Finally, make it your goal to be timely and accommodating to the peer reviewer. Missing deadlines or seeming uncooperative will leave a bad taste in the peer reviewer’s mouth. Put your best foot forward and let the peer reviewer know that your firm takes quality control very seriously.

At Collemi Consulting, we offer a full spectrum of services to assist CPA firms get ready for their AICPA peer reviews, including conducting an engagement review and ensuring workpapers are in order. And there’s no need to undergo the peer review process alone: We can partner with you during every step of the process to help you gather required information and documents and ensure you hit all deadlines. To schedule an appointment, contact us at (732) 792-6101.

Harness Your “Soft Skills” — Build Your Accounting Career— Before Next Busy Season!

Wed, 15 Jun 2022 16:33:10 GMT

Executive presence. Public speaking. Critical thinking. Business development. Negotiating. Time management. Branding. Marketing. These are abilities you may not immediately associate with accounting and auditing, but they’re exactly the sort of skills that will help propel your accounting and auditing career. A recent report from The Institute of Internal Auditors (IIA) and Robert Half proclaimed, “Soft skills are the new hard skills." As the accounting field continues to grow, with more than 96,000 new accounting and auditing jobs expected to be created by 2030 (according to estimates from the U.S. Bureau of Labor Statistics), a strong portfolio of soft skills will set you apart with others in the field and help you take the next step in your career.

And now is the perfect time to focus on getting the training you need to build those skills. While many accountants and auditors use the summer and fall months to earn their Continuing Professional Education (CPE) credits, many view this training merely as a way to maintain their license and stay up-to-date with respect to the technical aspect of the field. This is a mistake! Instead, accountants and auditors should view training as an opportunity to build important soft skills that will help them advance their careers.

Depending on where you are in your career — and where you want to go — here are some soft skills you should develop to the next level.

If you want to become an in-charge auditor: Get training in critical thinking.
Most organizations view critical thinking as a necessary skill for auditors. Think of it this way: When you see a spreadsheet, does your brain automatically begin calculating the numbers on it, or do you spot a deeper story? When it comes to audit planning, the ability to think critically can help you determine the most important areas for audit capability to focus on given limited time and resources. And when it comes to reporting, those same critical thinking skills can help you determine which issues should be included in the report and which can be safely excluded. Simply put, critical thinking can help auditors provide actionable insights on how their clients can mitigate risks and reach their objectives.

If you’re thought of as a critical thinker on the team, your value increases exponentially. To build your critical-thinking skills, invest some time taking in person or e-learning. Also, consider working with a mentor or coach, who can provide exercises for you to learn how to think “outside of the box.”

If you want to rise to the level of manager: Hone in on your public speaking and persuasive skills.

Great auditors need to be great communicators. Indeed, a recent study by PwC revealed that good communication is one of the keys of successful leaders in the profession. The report concluded that communication is crucial because auditors must relay key messages to both internal and external stakeholders who may have different expectations.

At the same time, it’s been shown that auditors with strong persuasive skills are able to reduce push-back during the auditing process, promote a greater understanding of the audit’s important role in the business, and increase the speed at which information is shared in response to audit requests.

Also, strong managers need persuasive skills to get team members to work together and achieve a goal. The upshot: Invest some time in public speaking courses, focusing in particular on the art of persuasion.

If you want to become an audit partner: Build your business acumen and executive presence.

It’s a fact: Audit professionals with the strongest career paths do not just do their jobs with excellence, but they’re able to connect the dots and understand the business impact — and convey that information to the other stakeholders. In a survey conducted by the Institute of Internal Auditors, “business acumen” was ranked as one of the most desirable skills by chief audit executives.

As an audit partner, in addition to overseeing all financial audits of the firm, you’ll need to develop additional skills, such as business development and negotiation and have executive presence. An understanding of business ledgers and tax procedures is also an important part of your job.

The bottom line:

Invest in yourself! Spend the next few months working on some of these skills via in-person or e-learning courses, or contact Collemi Consulting at (732) 792.6101 so we can develop a training program suited to your individual needs. By strengthening your soft skills, you’ll put your accounting career on a faster trajectory to the top!

Collemi Consulting provides customized, one-on-one and group training to help members of the public accounting profession build their skills and stay up to date on the newest accounting and auditing standards. We regularly develop courses and training materials customized to each client and can help spot and correct training deficits. Contact us so that we can survey your firm’s training needs and offer a customized solution.

Preliminary Analytical Review Procedures in a Financial Statement Audit

Mon, 11 Apr 2022 17:04:07 GMT

6 Key Things You Need to Know!

If you’re responsible for conducting audits of privately-held entities under auditing standards generally accepted in the United States of America (U.S. GAAS), there are some key considerations pertaining to performing preliminary analytical review procedures during planning.

Keep in mind that AU-C Section 315, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement , specifies that our risk assessment activities should include analytical procedures.

Well-designed preliminary analytical review procedures are based on appropriate expectations of plausible relationships can be very effective in identifying risks of material misstatement (RMM) during the risk assessment process in audit planning. However, because preliminary analytical review procedures are ideally performed early in the process, the analytical procedures may use information that is aggregated at a relatively high-level (i.e., recent interim financial statements or, if financial statements are not available, a general ledger or trial balance). Information aggregated at a relatively high-level is appropriate at this stage of the audit because the intent of the audit engagement team is to identify potential audit issues or risks, and not reach a conclusion on the reasonableness of a specific balance. Accordingly, audit engagement teams need to consider the results of preliminary analytical review procedures along with other information gathered in identifying the risks of material misstatement.

Here are six factors to be aware of:

Prior Knowledge of the Client’s Industry and Business Operations

Knowledge of audit clients’ operations and the industry in which they operate in is strongly linked to the effective use of analytical procedures for audit planning and assessing risk.

Engagement teams are expected to understand a client's business and industry and to know what relationships could be expected to exist, what relationships would be considered unusual or unlikely, and what plausible explanations might exist for observed relationships, prior to performing preliminary analytics.

Preliminary analytical review procedures might include reviewing changes in account balances from the prior to the current year using the client’s internal financial statements or a grouped trial balance or analysis of ratios or trends related to profitability, liquidity, solvency, and activity.

Identification of Potential Risks in an Audit

Analytical review procedures, among other procedures used in the planning stage only need to be designed to identify audit areas with unusual or unexpected relationships that may be indicative of potential risks and material misstatements, thus needing linkage and consideration of impact on the audit plan by the engagement team. In the audit of companies with simple operations, simple comparisons and ratios are ordinarily effective, whereas in more complex engagements the engagement team may need to make use of complex mathematical or statistical models such as ratio or trend analysis.

Consideration of Revenue

In addition to the requirement in AU-C 315 to perform analytical procedures as part of risk assessment procedures, AU-C 240, Consideration of Fraud in a Financial Statement Audit , requires that, to the extent they are not already included, analytical procedures should include procedures related to revenue recognition. Audit engagement teams perform preliminary analytical review procedures related to revenue to identify unusual or unexpected relationships that may indicate fraudulent financial reporting.

Use of Interim Financial Information

When audit engagement teams are using interim financial information for their preliminary analytical review, keep in mind certain factors, such as seasonal trends, that might be considered in making comparisons. For example, if the audit engagement team is using information as of the end of November and the client's business is highly seasonal with substantial activity in December; a straight annualization of interim information will not provide a meaningful comparison. Sometimes, particular accounting methods may make comparisons less meaningful such as if the client uses the LIFO inventory method; comparison of gross profit ratios might be improved by restoring LIFO reserves before computing the ratio. Audit engagement teams should also be aware of the possibility of events such as strikes or changes in production methods that influence comparability.

Bring Professional Skepticism to the Assessment

Audit engagement teams should avoid making mechanical computations and comparisons when documenting their preliminary analytical review. We encourage audit professionals to bring in as much skepticism, creativity and insight to the assessment as possible.

In the audits of most recurring clients, audit engagement teams likely have a sufficient understanding of the client and its operations to judgmentally consider the expected relationships. The audit engagement team will need to document these expectations based on their knowledge of the client, the industry, the economy and current discussions with management.

Included below are some examples of unusual or unexpected relationships and possible risks that may exist for audit engagement teams to consider:

Documentation Requirements

Documentation of preliminary analytical review procedures must be sufficient to provide linkage to the audit engagement team's risk assessment. The results of the preliminary analytical review ordinarily are documented using a narrative memorandum, comparative carry forward schedule, or other combination thereof. The documentation should address how the engagement team: (a) developed their expectations, (b) compared their expectations to the client’s actual amounts to see if they were met or not, and (c) selected which balance sheet and income statement accounts require audit attention. One common form of documentation is referred to as a “flux analysis.” A flux analysis is a narrative explanation by financial statement caption or line item of the change in the amount from the prior period and of any unusual or unexpected relationships to other financial statement line items in the current period. Although a flux analysis is not required by standards, it’s recommended as a convenient means of documenting the thought process of the audit engagement team.

Collemi Consulting has significant expertise with respect to the performance of preliminary analytical review procedures in a financial statement audit. Contact us so we can assist with the process and help ensure that you’ll able to comply withProfessional Standards.

Strategic Audit Sampling

Tue, 05 Apr 2022 19:22:31 GMT

As a best practice, sampling should be a CPA’s last line of defense! Here’s why.

Do we always need to sample? That’s a question many CPAs ask themselves when getting ready to conduct audit engagement.

An important aspect of planning an audit is deciding the extent of which audit procedures to perform. Decisions about the extent of testing may be dependent on the number of client locations or components to be tested and/or the cutoff amount for individually significant items (ISI) and sample sizes.

Authoritative guidance applies when audit engagement teams decide to use audit sampling in performing audit procedures which can be found in Professional Standards of the American Institute of Certified Public Accountants (AICPA) - AU-C 530B, Audit Sampling . AU-C 530B addresses the engagement team’s use of statistical and nonstatistical sampling when: (a) designing and selecting the audit sample, (b) performing tests of details and tests of controls and (c) evaluating the sampling results.

Guidance requires that when audit engagement teams design tests of controls and/or tests of details, they should determine an approach to selecting items for testing that is effective in meeting the purpose of the audit procedure. Approaches to selecting items for audit testing are as follows: (a) selecting all items in the population (100% testing), (b) target items and (c) audit sampling. Engagement teams may apply any one or a combination of these approaches to selection depending on the facts and circumstances.

Audit sampling enables conclusions to be drawn about an entire population based on tests of a sample taken from that population. The ability to draw valid conclusions based on a sample depends on determining an appropriate sample size, having an appropriate sampling approach and method of selection, and appropriately following up on exceptions.

So, the answer to our opening question regarding whether auditors need to always sample, the answer is (drumroll, please); no! The biggest mistake we make as auditors is to automatically select a sample and perform detailed testing. We have to think about more efficient ways of gaining assurance over an account balance (or a class of transaction) and still ensure the risk is eliminated or appropriately mitigated to an acceptable level. As a best practice, sampling should be used as our last resort. However, in some situations, there may be no alternative but to sample. So, for example, where a population (or part of a population) is material to the audit, consisting of only low value similar items (or transactions), and where the nature of the account is such that analytical review procedures cannot be used, then audit sampling may be our only option in the absence of any suitable controls that could be tested.

Here are some upfront questions we should be asking ourselves:

Are there any controls at the client we can rely on?
What procedures are we performing on the account?
What is the level of assurance we will obtain from these procedures?
What is the remaining balance amount of the account?
Is the remaining balance a significant risk?

So, before sampling, it’s advisable to conduct target testing on high-risk transactions first. If you separate and test account balances identified as high risk (e.g., accounts that belong to customers the client has had difficulties with in the past or have unusually high dollar amounts), you may be able to reduce the sample size, or forgo audit sampling altogether. When you complete this type of target testing, you’re taking the inherent risk—the susceptibility of an account balance or class of transactions to material misstatement— from a high risk and bringing it down to a moderate risk.

Often, auditors forgo target testing and leave the inherent risk high, which in turn, causes your sample size to be higher. By target testing high-risk transactions first, you’ll achieve a greater efficiency in coverage.

Remember, you don’t always need to sample. Assess what additional procedures you can perform first before sampling. Your audit approach needs to be tailored based on the nature of the balance you’re testing and the related risks. If the remaining balance is immaterial and you have not raised a significant risk, then no further audit work is needed. It is important to reassess inherent risk over the remaining population in order to obtain sufficient appropriate audit evidence in the most efficient manner.

Collemi Consulting has significant expertise in the nuances of deciding whether engagement teams should perform audit sampling and if so, how to properly determine an adequate sample size. We recommend CPA firms and auditors to contact us before or during audit planning so we can assist with the sampling process to maximize efficiency and help ensure that you’ll able to issue an appropriate opinion under Professional Standards.

Save Time, Avoid Mistakes with Careful Planning Regarding Calendar Year-End Audits

Wed, 01 Dec 2021 05:28:20 GMT

Organized collaboration. Accurate results. An expedited time frame. Do these terms describe your last busy season?

If they don’t, poor audit planning may have been the culprit. Increasingly, we at Collemi Consulting & Advisory Services, LLC find that we’re coaching our CPA clients to invest more time upfront on planning for end-of-year audit clients.

Proper planning is an investment in time that will surely pay dividends in later phases of the engagement. One big reason: Identifying potential problem areas at the start could save time later. Engagement teams can plan their audits in a manner that helps them focus squarely on the high-risk areas upfront and less on relevant areas of low risk.

Here’s another reason to allot more time to planning up front: It can help auditors identify high-risk elements on a timely basis, which can save a considerable amount of time over the audit period. For instance, auditors might discover up front additional documents they’ll need to justify a specific transaction, and they can ask their clients to arrange for the documents to be produced expeditiously to avoid delays.

So, how much time should engagement teams spend planning for their calendar year-end audits?

A general rule of thumb is to budget about 20 percent of your time on advance planning. So, if you think you’ll spend roughly 100 hours on this year’s audit, build in about 20 of those hours to sit down with your engagement team members and think through how you’re going to tackle it.

Here are some key areas to consider as you develop your audit plan: Focus on risk assessment early in the process (AU-C §315):

Too often, auditors use a “same as last year” (a.k.a. SALY) approach to audit planning, but that’s a dangerous strategy: It doesn’t consider current conditions and increases the likelihood of errors. A solid risk assessment process includes the following components:

Assessing prior experience with the audit client and audit procedures performed in prior audits
Facilitating discussions among the audit engagement team members
Developing an understanding of the audit client
Identifying the risk of material misstatement due to fraud or error
Identifying the accounting processes and key controls
Assessing the risk of material misstatement identified as high, moderate or low

Take your time on this: Pinpointing areas of greatest risk at the onset of an audit allows for additional analysis, reducing the likelihood of error that may result in a professional liability claim.

Assemble the right engagement team (AU-C §300.05)

Assigning complex or difficult areas of an audit to the appropriate level of expertise, depth of experience, or extent of review is an important step in reducing the chances of an error. Take care to ensure the most experienced engagement team members are heavily involved in identifying audit risks and responses.

Remain flexible

As your audit progresses, remember that planning is a guide for work to be performed, not a step-by-step instruction manual. Flexibility sets a positive tone that can be established in planning and carried through to issuance. The audit plan and strategy developed at the start of the engagement should be updated and adjusted based upon information gathered throughout the engagement.

Be mindful of the new auditor's reporting standards

The AICPA's Auditing Standards Board new auditor’s reporting standards are going into effect for years ending on or after December 15, 2021. The new standards are designed to improve the transparency and relevance of the communication in the auditor’s report. For a snapshot of the new standards, see “New Auditor Reporting Standards: What You Need to Know.”

Seek outside help

As you begin the planning process, keep in mind that Collemi Consulting & Advisory Services, LLC has decades of experience helping our CPA firms prepare for their calendar year-end audits and can partner with you to see what was effective (and what wasn’t) in the prior year’s audit, address new considerations, and help you develop a game plan for this year’s engagements.

Don’t be tempted to rush right into this year’s process. Spend 20 percent of your time creating the audit plan, and you’ll set the stage for a seamless, more accurate, collaborative engagement.

The new auditor's reporting standards are brand new territory for most CPA firms; schedule an appointment with us, and we’ll help to ensure the transition is a smooth one for you and your assurance practitioners.

New Auditor’s Reporting Standards: What You Need to Know!

Mon, 01 Nov 2021 04:25:00 GMT

You’re likely aware that the AICPA's Auditing Standards Board (ASB) new auditor's reporting standards set to go into effect for audits with years ending on or after December 15, 2021.

This is a big deal, with a big upside: The new suite of standards is designed to enhance the relevance and transparency of the auditor’s report. And, simply put, the new rules make good sense: CPAs and their clients will benefit from implementing the new standards because they were created to provide greater value to users of audit reports by making the auditor’s opinion more transparent.

In addition, changes to language in the report are meant to provide more valuable information and more distinctly define the responsibilities of both the auditor and management. Another objective of the new standards was to align generally accepted auditing standards (U.S. GAAS) with the standards issued by the International Auditing and Assurance Standards Board (IAASB) of the International Federation of Accountants (IFAC) and the Public Company Accounting Oversight Board (PCAOB).

The bottom line? The new auditor's reporting standards are intended to improve the transparency and relevance of the communication in the auditor’s report.

Here are five key changes that practitioners should pay particular attention to:

One of the biggest changes: With the new standard, SAS 134-140 address the auditor’s responsibility to form an opinion on the financial statements. As a result, the auditor’s opinion has been moved to the first part of the report, to be followed by a Basis for Opinion section. This new section focuses on the obligations relating to independence and clarifies that there are other ethical requirements of the audit engagement.

The new guide also requires enhanced reporting of going concern. This includes a description of management’s responsibilities to evaluate whether conditions of events raise substantial doubt about an entity’s ability to continue as a going concern.

There is an expanded description of the auditor’s responsibilities for the audit, including the auditor’s communications with those charged with governance.

When engaged by management to include key audit matters (KAMs) in the auditor's report, Section 701 addresses both the auditor’s judgement about what to communicate in the auditor’s report and the form and content of such communication.

The definition of materiality has been revised as follows: Misstatements, including omissions, are considered to be material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.

This is only a quick snapshot of the new reporting standards. Now that adopting the standard is imminent for those who have calendar year-end audit clients, it’s important to take the time to review it thoroughly in order to adequately prepare for implementation. But there’s no need to go at it alone. At Collemi Consulting & Advisory Services, LLC, we’ve been spending the past year walking our CPA firm clients through the new standards to quickly get them up to speed with expert guidance.

Getting Ready for Your Next Internal Inspection!

Fri, 01 Oct 2021 04:15:27 GMT

Every three years, most CPA firms and sole practitioners go through a mandatory peer review of their accounting & auditing (A&A) practice as outlined in the AICPA Peer Review Program .

During the two-off years, CPA firms are required to perform their own monitoring procedures to ensure their system of quality control is properly designed and operating effectively. Collemi Consulting has leveraged its 20-plus years of experience assisting CPA firm practice leaders to prepare for this rigorous oversight during the “breather” that follows busy season by having such services outsourced.

Designed to assess the quality of a firm’s audit approach, an internal inspection, just like a peer review, considers the leadership, culture and other elements of quality control attributes by analyzing a “snapshot” of its activities. The inspection involves more than just revisiting recently issued attest engagements — instead, it’s a matter of analyzing the CPA firm’s attest practice’s operations.

To prepare for your next peer review, CPA firms should consider establishing an ongoing system of monitoring and quality control, as outlined in the AICPA’s Statement on Quality Control Standard No. 8. The firm’s system of quality control should encompass the following six elements:

Leadership responsibility for quality within the firm (“tone at the top”)
Relevant ethical requirements
Acceptance and continuance of client relationships and specific engagements
Human resources
Engagement performance
Monitoring

Our Testing Approach

To assist CPA firms with this process, we’ve created a “must do” testing approach: from drafting and reviewing your firm’s Quality Control Document, to interviewing and evaluating your professional staff, policies and procedures.

Here are some examples of the areas we test during the inspection:

Reviewing your firm’s Quality Control Document;
Reviewing of a cross section of attest engagements;
Testing of professionals’ CPA licensing;
Testing of independence of partners and professional staff;
Testing of professionals’ CPE requirements;
Examine firm’s professional literature;
Test state licensing requirements;
Interviewing professional staff regarding their understanding of policies and procedures

Internal monitoring tasks should be assigned to qualified individuals with appropriate technical training and proficiency, and results of the internal monitoring should be communicated to appropriate firm personnel.

Most of the practices we’ve advised get some things right, but almost all of them miss some key points. Common pitfalls include lack of understanding of the auditor independence rules, particularly regarding unpaid prior years’ fees, and not meeting the General Requirements prior to performing permissible non-attest services for an attest client.

Other missteps include a failure to appropriately modify a report for a scope limitation or a significant departure from GAAP, omissions of required critical reporting elements of applicable standards, and issuing an audit report when the auditor was in fact not independent.

Help your clients prepare now for the adoption of the new leasing standard

Sun, 02 May 2021 04:11:55 GMT

Effective for fiscal years beginning after December 15, 2021 and — interim periods within fiscal years beginning after December 15, 2022

— the Financial Accounting Standards Board (FASB)’s Accounting Standards Update (ASU) 2016-02 (ASC Topic 842) will introduce a significant change to lease accounting for most private companies. The new standard will, for the first time, generally require companies to bring their long-term lease obligations onto the balance sheet. For the past five years, Collemi Consulting has been working with CPA firm leadership and their respective clients — particularly ones who are lessees in the transaction — to understand and implement it.

Who will be affected?

ASC Topic 842 will mean that approximately $3 trillion of right-of-use (RoU) assets and lease payment liabilities will be added on to U.S. companies’ balance sheets. Certain industries, such as retail, telecommunications and real estate, will be severely impacted — but all businesses that participate in leasing transactions will be impacted to some degree.

You may think it’s not a lease, but certain terms and conditions will make it one!

Fact Pattern: consider a consumer products company (CPC) that has a two-year agreement with a contract manufacturer for a dedicated production line to manufacture a line of store-brand household products. The contract states that the CPC has exclusive use of the production line; that the manufacturer must perform maintenance on the product line; and that the CPC will issue orders to the manufacturer about the quantity and timing of product deliveries.

According to ASC Topic 842, this contract contains a lease because the CPC (or the lessee) has the right to use the dedicated production line for two years, and the dedicated production line is an implicitly identified asset because the manufacturer has only one line that can fulfill the contract and does not have the right to substitute the specified production line. The CPC must now recognize both a RoU asset and an associated lease liability on the balance sheet!

Some fine print

An audit engagement team will need to discuss with management the accounting requirements of the new guidance to assess whether the client is adequately planning for the transition, including the use of the practical expedients and accounting policy elections that are available. The audit team may want to discuss the associated business and tax implications early on, to ensure that all issues are addressed in a timely manner.

The audit engagement team will also need to engage with management about the implications of the available elections. For example, electing to avoid separating lease and non-lease components; or weighing whether the election of a risk-free rate as the discount rate will make the transition easier and take less time, but will result in larger asset and liability balances.

Successfully Preparing For Year-End Audits of Privately-Held Clients

Sun, 02 May 2021 03:58:50 GMT

Year-end is typically a busy time for external auditors, even without the added stress of the COVID-19 pandemic. But as most CPA firms know, the hectic atmosphere is not a reason to neglect a highly-developed, measured, methodical year-end audit strategy plan.

In addition to meeting a CPA firm’s quality control standards, audit engagements are subject to a peer review or outside monitoring process — and a peer review report with a rating of pass with deficiencies, or fail, may shake the core confidence of a CPA firm’s leadership, clients and the public interest. Collemi Consulting professionals have been called in when CPA firms have encountered negative peer review results, and we’ve been asked to address some commonly cited matters.
To begin with, a well-crafted audit will address and satisfy the following issues:

Common peer review challenges
Audit planning and supervision
Audit risk and risk assessment procedures
Obtaining and documenting an understanding of the audit client and its environment, including its internal controls
Materiality considerations
Linking audit procedures to mitigate the risks identified and reach audit conclusions
Required auditor communications

The auditor’s overall objective when conducting a risk-based approach to audits of financial statements is to provide reasonable assurance that the financial statements, as a whole, are free from material misstatement, enabling the auditor to express an opinion on whether the financial statements are prepared, in all material respects, in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP).

Avoidance of Common Peer Review Issues
Frequently cited mishaps with respect to risk assessment include:

Failure to link the substantive procedures performed to the results of the risk assessment
Audit procedures not linked to the client’s financial statement and relevant assertion-level risks for significant classes of transactions, account balances, or disclosures
Designing audit procedures with little regard for the results of that assessment as required by AU-C 315, Understanding the Entity and its Environment and Assessing Risks of Material Misstatements.

Risk Assessment Shortcomings

Peer reviewers often cite shortcomings in auditors’ understanding of the entity and its control environment. This includes a failure to understand the entity’s internal controls. When conducting your risk assessment, it’s useful to remember that your assessment will generally be more effective at the start of the engagement, and that internal control procedures may be performed before the risk assessment document is completed. The auditor, however, is not required to test internal controls unless mandated under certain circumstances.

Other critical points to keep in mind include the importance of having strong audit workpaper documentation; and that the risk assessment process is an iterative one: repetition in order to generate a sequence of outcomes. Also, the AICPA Professional Standards have changed over the last decade due to the issuance of the suite of risk assessment standards and Clarity requirements.

Please note that practice aids are no substitute for understanding the Professional Standards. Although auditors are only required to document their understanding of the factors that help them draw conclusions, auditors are still responsible for maintaining adequate documentation, and it’s their responsibility to meet Professional Standards.

Audit Documentation Dilemmas

Audit documentation is defined as “the record of audit procedures performed, relevant audit evidence obtained, and conclusions the auditor reached.” Audit documentation should be sufficient to enable an “experienced auditor” — one who is independent and competent enough to challenge the engagement team’s procedures and conclusions — to understand such characteristics as the nature, timing, and extent of the audit, the results of the audit procedures performed, and any significant findings or issues.

Properly executed, audit workpaper documentation can stand on its own without any verbal explanation by the auditor if it answers the 5 “W” and 1 “H” questions: Who?, What?, When?, Where?, Why?, How?

Audit documentation serves as:

Evidence that the audit was properly planned and performed in accordance with auditing standards generally accepted in the United States of America (U.S. GAAS) and Evidence of the auditor’s basis for a conclusion

To further increase audit quality, audit documentation should provide sufficient and appropriate evidence that:

Risk assessment procedures were performed
There was appropriate response to address the risk of misstatement at the financial statement level
The nature, timing and extent of audit procedures performed were adequate for the engagement
There was linkage of those procedures with the assessed risks
The results of the audit procedures
Conclusions reached
Significant risks were reasonably considered

Audit workpapers should also reflect justification for any departures from presumptively mandatory requirements. They should also identify individuals who performed the work, when it was completed, the person who reviewed the work, and the date and extent of the review.

Don’t Forget About Litigation Attorneys

Over the years we’ve worked with litigation attorneys who have shared some “flash points” with us about notes and other workpaper matters that can come back and haunt the auditor. To be on the safe side, these are some real-life phrases and other items that should not make an appearance in your audit workpaper files:

Extraneous remarks or irrelevant memoranda, like “the client’s books are a complete mess” or “these expenses seem questionable”
Auditor statements that discredit their own work: “close enough for government work”
Personal files containing memos, schedules, and other matters related to an engagement
Superseded or outdated workpapers

Elements of properly prepared workpaper files include: initialing and dating each audit program step, signing off any audit program step as not applicable “N/A,” or as not considered necessary “N/C/N”, followed by an explanation. Any “Open Items Lists” should be reviewed and any conclusions regarding unique issues should be thoroughly documented. Additionally, time budgets explaining any overages and underages should be maintained, and the completion date should be documented. Professional Standards require that workpapers should be retained for a minimum of five years from the report release date — although practice, legal, regulatory, or other factors may dictate a longer retention period.

Don’t Forget Your Independence

The AICPA Code of Professional Conduct requires auditors to be independent in both fact and appearance. Auditor independence issues can be classified into four high-level areas:

Financial interest
Family relationship
Management function
Management decision making

In order to perform permissible non-attest services, the audit client must first agree to:

Make all management decisions and perform all management responsibilities
Designate an individual with suitable skills, knowledge, and/or experience, preferably within senior-level of management, to oversee the performance of the non-attest services
Evaluate the adequacy and results of the non-attest services
Accept responsibility for the results of the non-attest services
Establish and maintain internal controls, including monitoring ongoing activities

Auditors should exercise caution when it comes to certain “independence” matters that can raise red flags about their independence in a peer review or litigation matter. Some areas include:

Pr oviding multiple non-attest work products
Significant concentration of revenue coming from one audit client
Taking on management responsibilities
Providi ng consultation that goes beyond routine advice
Inadvertently engaging in other non-compliance activities like performing non-attest services for a company before it becomes an attest client; loaning staff members to an attest client; certain mergers or purchase of a CPA firm; employment of, or association with, an attest client; performing attest services for a client with unpaid fees; and engaging a client employee

Other red-flag issues include financial interests in an attest client and their affiliates, the adequacy of fees being charged, and the existence of group audits.

Making Accounting Sense of SBA PPP Loan Borrowings

Fri, 02 Apr 2021 04:04:28 GMT

A CPA firm that has been a long-term client with Collemi Consulting was advising its clients that received funds under the Small Business Administration (SBA) Paycheck Protection Program (PPP)

They quickly realized that there was a lack of explicit guidance about the accounting and disclosure for the funds received by the clients;or whether they should even be treated as loans or grants. We advised the CPA firm and offered overall guidance about the accounting treatment, including footnote disclosure in the financial statements, and how the CPA firm should draft the proper representation in the management representation letter.

PPP loans were a lifeline to many businesses, providing them with a cash infusion at a time when many companies had to close or restrict their operations under government edicts. The low-interest loans also came with a bonus — they have the potential of being forgiven under certain circumstances. But CPAs soon realized there was a flip side to the good news: in the absence of concrete guidance, the accounting for the loans was a nightmare.

It may be accounted for as a financial liability under ASC Topic 470, Debt; Subtopic 405-20 Liabilities—Extinguishment of Liabilities. Under this treatment, although the debtor is legally released from the obligation, interest will be accrued under FASB ASC Sub-Topic 835-30, Interest – Imputation of Interest. Further, a gain on extinguishment will be recorded on the income statement.
Under IAS 20, Accounting for Government Grants and Disclosures of Government Assistance, the loan proceeds may be accounted for as other income, or reduction of related expenses on the income statement — and on the balance sheet as a deferred income liability with no accrued interest if there is reasonable assurance that the forgiveness conditions will be met.
Under ASC Topic 958-605, Not-for-Profit Entities—Revenue Recognition, the loan proceeds may be accounted for as a contribution received or a grant on the income statement — and on the balance sheet as a refundable advance. Interest will not be accrued, provided loan conditions will be substantially met or explicitly waived.
Under ASC Topic 450-30, Contingencies—Gain Contingencies, the loan proceeds may be accounted for as a gain on the income statement — and on the balance sheet as a deferred income liability with no accrued interest, if all contingencies are met and the gain is realized or realizable.

With respect to nonprofit entities,

Under ASC Topic 958-605, Not-for-Profit Entities—Revenue Recognition, the loan proceeds may be accounted for as a contribution received or a grant in the income statement — and on the balance sheet as a refundable advance. Interest will not be accrued, provided loan conditions will be substantially met or explicitly waived.
Under ASC Topic 450-30, Contingencies—Gain Contingencies, the loan proceeds may be accounted for as a gain on the income statement — and on the balance sheet as a deferred income liability with no accrued interest, if all contingencies are met and the gain is realized or realizable.

We’ve also advised CPA firms that they will need to evaluate all of their clients’ facts and circumstances to ensure the appropriate accounting for any debt modification. For example, modifications to debt arrangements may include any of the following:

Reduction (including contingent reductions) of the stated interest rate for the remaining term of the debt
Extension of the maturity date, or dates, at a stated interest rate lower than the current market rate for new debt with similar risk
Reduction — including contingent reductions — of the face amount or maturity amount of the debt as stated in the debt arrangement or other agreement
Reduction, including contingent reductions, of accrued but unpaid interest

Collemi Consulting has examined both FASB and IASB guidance, and we’ve counseled CPAs about determining whether a modification to, or an exchange of a client’s debt arrangement should be accounted for as a troubled debt restructuring (TDR); and whether a nontroubled modification or an exchange of debt with the same creditor is accounted for as an extinguishment of the existing debt and issuance of new debt, or as a modification and continuation of the existing debt.

A TDR generally occurs when a borrower is experiencing financial difficulties and when a lender grants a concession to the borrower that it would not otherwise consider. However, a debt restructuring is not necessarily a TDR — even if the borrower is experiencing financial difficulties. For example, a TDR does not occur if either:

The lender reduces the effective interest rate on the debt primarily to reflect a decrease in market interest rates in general, or a decrease in the risk to maintain a relationship with a borrower that can readily obtain funds from other sources at the current market interest rate
The borrower issues, in exchange for its debt, new marketable debt having an effective interest rate based on its market price that is at or near the current market interest rates of debt with similar maturity dates and stated interest rates issued by nontroubled borrowers.

At this point in time, our understanding is that a portion of the borrower’s PPP loan (and related interest) will be forgiven — equal to eligible expenses including payroll costs, interest payments on mortgages, and rent and utility payments — made during the loan’s qualifying period, provided that the borrower met all of the loan’s employee-retention criteria. According to the SBA, a borrower, in order to receive forgiveness, must submit an application to the creditor. The creditor will then issue a recommendation to the SBA within 60 days on whether the borrower is entitled to full, partial, or no forgiveness of the PPP loan; and will request payment from the SBA equivalent to the amount for which it recommends forgiveness, including accrued interest.

The SBA then has 90 days to review the request for payment from the creditor. If the SBA agrees with the creditor’s recommendation, the SBA will pay the creditor for the amount forgiven, plus any interest that accrues through the date of payment. The borrower must then remit any amount not forgiven by the SBA to the creditor in accordance with the terms of the PPP loan. If the SBA subsequently determines that the borrower was ineligible for the PPP loan, the borrower must immediately repay the loan to the creditor.

A Tool to Boost Business Intelligence

Mon, 02 Mar 2020 04:32:14 GMT

CPAs deal with volumes upon volumes of client information. Data analytics can help make sense of it.

Businesses and their advisors seek creative ways to make sense of enormous amounts of information, or “Big Data”, to solve inefficiencies, detect fraud and enhance profitability.

With many attest clients processing their transactions electronically, CPAs and other technical consultants are now getting involved in Data Analytics — the art and science of processing Big Data to discover and analyze patterns, identify anomalies, and extract other important information embedded in data through analysis, modelling and visualization relative to human behavior and interactions.

Data Analytics can be utilized to enhance many professional services, including audit and review engagements, forensic investigations, consulting engagements, and assisting clients in business decisions. For CPA firms, Data Analytics is a powerful tool because it can help auditors achieve 100% coverage in substantive testing, which decreases engagement risk while increasing efficiency and realization.

At the same time, demand is growing for Data Scientists, or individuals that have strong analytic abilities and are skilled in computer coding. Data Scientists understand how to use Data Analytics to process Big Data efficiently and aesthetically, blending form with function.

When data is received in a format that’s not user-friendly, for example, data analytics can make it easier to use. In one case, a CPA firm that’s a Collemi Consulting client was presented with more than 100 individual journal entries — necessary for substantive purposes — that were not only presented in PDF, but were structured in a variety of different formats. The CPA firm essentially had information but did not have an efficient way to use it, since manually converting the journal entries into a standard, usable format would be extremely time consuming.

Instead of reformatting each entry, we automated the process by devising a computer code that could electronically identify and extract information directly from the General Ledger, which already presented with a uniform format.

This enabled the external auditors to efficiently read and utilize the information; and as a bonus, the Collemi Consulting code also summarized the P&L and balance sheet effects of the 100-plus journal entries.

Integrating Data Analytics into their practice gives audit professionals an opportunity to provide additional value-added services to existing clients while potentially attracting new ones. Audit professionals who want to integrate Data Analytics into their practice generally have three options of doing so: devoting a lot of time to understanding third-party specialized computer aided audit tools (CAATs) software, some of which utilize Artificial Intelligence (A.I.); take on the long-term commitment of hiring a Data Scientist in-house to build custom applications, or outsource the task to a Data Lab.

Regardless of the approach they select, auditors will be able to harness the power of Data Analytics to automate numerous attest procedures, including tests for: non-standard journal entries, accounts receivable, accounts payable, payroll, travel and entertainment expense reimbursements, fixed assets, check registers and cash disbursements, and revenue recognition. Data Analytics can also enhance and digitize such activities as stratification, risk score assignments, multi-dimensional analysis of transactions, data joins, data appends, data aggregations, data visualization, and of course, taking on large data sets that previously could not be analyzed because of constraints like time and staff size.

As businesses continue to face more pressure to process transactions faster — with less staff and other resources — their vulnerability to fraud or errors continues to increase. An effective Data Analytics strategy can address this potential vulnerability, and Engagement Team Leaders — including Partners, Managers, and In-Charges — should consider the benefits of embracing automation while determining the approach that best fits their firm’s practice and budget.

Navigating COVID-19 Audit Challenges

Mon, 11 Mar 2019 14:55:30 GMT

Social distancing and other pandemic safety measures present challenges. Here's how to navigate around them.

Under the new remote work environment in which many CPA firms and their clients now find themselves, external auditors have had to modify some of their traditional audit procedures.

As part of an annual audit engagement of a manufacturing client, a mid-sized CPA firm in the New York Tri-State area would normally perform an inventory observation — but travel restrictions and other COVID-19 obstacles made an on-site visit risky, if not impossible. The CPA firm contacted Collemi Consulting for advice and we suggested an alternative approach: do a remote physical inventory observation, using either a tablet or a smartphone.

A limited number of the manufacturing firm’s employees were still working on-site, wearing personal protective equipment (PPE) — so, under the audit engagement manager’s video-supervision, the employees could do a count, open boxes for testing, and perform other tasks as needed. Audit documentation requirements could be met through still photos, videos and the engagement team’s detailed notes.

The ongoing COVID-19 pandemic has had a significant economic and financial impact on businesses, and has also presented numerous challenges for auditors as they attempt to comply with their professional responsibilities and regulatory requirements. Consequently, audit engagement teams should also be prepared to address a wide range of issues.

Difficulty accessing client records — especially for clients who still maintain their records in hardcopy
Disclosure of enhanced risks and uncertainties; especially significant estimates and vulnerabilities due to concentrations in revenues, material, labor, specific markets, geographic and other areas
Adjusting procedures to address potential fraud risks
Obtaining audit evidence in cases where a client location is either closed or key personnel are not on-site
Confirmations may be a viable alternative to obtain audit evidence
In addition to video-enabled observation, clients that are unable to perform physical inventory counts at year‐end may decide to perform them on an alternative date, or perform alternative procedures if the client is using a cycle count procedure and a perpetual inventory system

In addition to coping with remote physical audits, particular focus should be on understanding the internal controls of the remote environment, increases in going concern assessments, significant financial reporting and disclosure implications, and the likelihood of not issuing an unmodified opinion.

In order to understand the client’s remote environment internal controls, especially in an unstable period, engagement teams should inquire whether any changes to internal controls occurred after preliminary work commenced. Often, those controls may have changed to accommodate remote work forces, and engagement teams will need to evaluate the degree of reliance that can be placed on those controls — especially since they may have been in effect for only a brief portion of the current year.

Obtaining an understanding of controls may be achieved remotely, but inquiry alone is not sufficient to determine whether they have also been implemented. Auditors will need to consider what evidence can be obtained remotely to determine if effectively designed controls have been placed in operation, and a scope limitation may need to be issued if they are unable to obtain sufficient appropriate audit evidence.

The pandemic is driving more uncertainty, which may cause deterioration in a company's operating results and financial position and lead to a higher incidence of going concern assessments. It could be extremely difficult for auditors to evaluate management’s assessment of conditions, or events that may have an effect on the company’s ability to continue as a going concern.

Significant financial reporting and disclosure implications could include adjustments to fair value measurements, as well as impairments to goodwill, indefinite-lived intangible assets, long-lived assets, and such other intangibles and tangibles as receivables, inventory, contract and deferred tax assets.

Auditor’s report implications could include increased use of Emphasis of a Matter (EOM) paragraph(s) triggered by an auditor determination that the COVID-19 pandemic is a major catastrophe that has had — or continues to have — a significant effect on the client’s financial position, results of operations and cash flows.

COVID-19 has had an unprecedented impact on many businesses, and external auditors are now challenged with having to continue to conduct audits in accordance with Professional Standards and comply with rules and regulations during the upheaval. Trusted technical consultants can provide valuable and insightful guidance to audit engagement teams, enabling them to provide the highest level of service to their clients while protecting the public interest.

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