Over the past year or so, the AICPA has alerted CPA firms to the importance of client acceptance and retention evaluation. As a defense for preventing association with less-than reputable clients and potentially erroneous or fraudulent financial statements, these evaluations are an integral part of the financial statement audit process.

One of the first quality standards formulated by the AICPA, these evaluations were treated as a compliance function by many CPA firms.

The Conceptual Framework for AICPA Independence Standards and Guide for Complying with Rules 102-505 identify seven threats to ethics rules violations. These pronouncements also discuss professional, client and CPA firm safeguards to eliminate or mitigate the threats. The quality control safeguard may be the most important for smaller CPA firms.

For smaller CPA firms, especially sole practitioners, meeting quality control standards for attest engagements is increasingly difficult.

In connection with the Financial Accounting Standards Board’s (FASB) codification project, the FASB has put together a new standard that incorporates the guidance in Auditing Standard 560 – Subsequent Events. This new standard is not expected to change current accounting practices. FAS 165 is applicable for interim and annual periods ending after June 15, 2009. This will be the second quarter 10Q for calendar year companies. (I hope you didn't forget.)

1. What are the changes to the accounting for subsequent events?

There are two changes with the new standard:

If you're just tuning in to "IFRS in Perspective," welcome! My blog focuses on the role that IFRS (International Financial Reporting Standards) can and should play in the future of financial reporting in the United States.

In my last post, I discussed the importance of setting broad public-policy goals with regard to financial reporting standards in general before we attempt to make any public-policy decisions specifically with regard to IFRS. To set appropriate goals, we must first reach consensus on the desirable attributes of such goals. That is, we must seek agreement on criteria that will help us assess proposed goals and identify which goals would be better for us to embrace than others. I've developed a set of such goal-setting criteria, and in this post I'll share those criteria with you. More importantly, I'll also be sharing a few thoughts on how we must apply the criteria in order to ensure that the public-policy goals we set are truly appropriate.

In my last blog, I discussed the AICPA’s Conceptual Framework for Independence Standards and Guide for Complying with Rules 102-505. Among seven identified threats to independence and other ethics rules, the familiarity threat may be one of the most important. Here is an example from my personal experience.

Working for an international CPA firm, I supervised a director’s examination of a small bank for the last two of the five years the engagement was performed by the firm. I liked the bank’s three employees and quickly developed a personal relationship with them.

I’m sure most of us would answer that we must comply with the AICPA Code of Professional Conduct and the rules of applicable state boards of accountancy in all functional areas of practice. A quick read of the disciplinary actions reported at www.aicpa.org, however, indicates not everyone understands the rules!

Some practitioners forgot requirements like we have to know what we’re doing when we engage to audit, we have to understand accounting principles and we can’t audit our own non-attest services.

I translated a few FASB Statements into the new codification. Hope this helps.

FASB Subject Topic Subtopic Title
FAS 5 Contingencies 450 10 Contingencies-Overall,
20 Loss Contingencies,
30 Gain Contingencies
310 10 Receivables-Overall
460 10 Guarantees-Overall
505 10 Equity-Overall
440 10 Commitments-Overall
360 10 Property, Plant and Equipment
720 20 Other Expenses-Insurance Costs

Underpinning the small audit documentation outlined in my last blog, a CPA firm’s operating philosophies can contribute significantly to engagement efficiency. First on the list is the involvement of leadership on engagements.

For all audit engagements, documentation must evidence compliance with the requirements of applicable SASs. Because SASs are written to be applicable audit engagements of all sizes, compliance for a small audit will likely be different than for a large audit. Audit documentation of compliance, therefore, is also likely to be different.

There is good news and bad news. First, the good news: for over two decades, publishers of auditing practice aids have supplied us with forms, checklists and programs to comply with existing professional standards. The bad news: the volumes of accounting and auditing pronouncements have increased exponentially causing huge stacks of paper or long lists of electronic forms for even the smallest audits.