Three New GASB Exposure Drafts

GASB is continuing its pursuit of placing all governmental debt on the statement of net position. With GASB 68 (Accounting and Financial Reporting for Pensions), governments will include unfunded pension debt on their balance sheets and, later, once the other postemployment benefit plan (OPEB) standards are reviewed and passed, you will likewise–it appears–place unfunded OPEB debt on the balance sheet. But the OPEB decisions are, at present, in the exposure stage.

In late May, GASB issued three exposure drafts (comment deadline for all three is August 29, 2014):

  1. Financial Reporting of Postemployment Benefit Plans Other Than Pension Plans
  2. Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions
  3. Accounting and Financial Reporting for Pensions and Financial Reporting for Pension Plans That Are Not Administered through Trusts That Meet Specified Criteria, and Amendments to Certain Provisions of GASB Statements 67 and 68.

1. above applies to OPEB plans themselves.

2. above applies to employers who offer OPEB plans.

3. above addresses pension plans not administered through trusts (most pension plans are administered through trusts).


Preparation of Financial Statements and Independence

Your firm’s preparation of financial statements for an attest client may impair your independence. And, of course, you can’t perform audits or reviews if you are not independent.

When might your firm’s independence be impaired?

When a client does not have a person with suitable skill, knowledge, and/or experience (SKE) to review the financial statements (prepared by the auditor) and assume responsibility.

If the client can’t assume responsibility, the auditor is deemed to be attesting to his own work (the self-review threat).


PEEC Adopts New Code of Conduct

As I recently posted, the AICPA Professional Ethics Executive Committee (PEEC) adopted a revised Code of Conduct that will be effective for engagements covering periods beginning on or after December 15, 2014. The new Code provides enhancements to independence standards, highlighting that preparation of financial statements is a nonattest service.

AICPA and GAO Independence Standards Converging

If you followed the changes to Yellow Book independence standards, this all sounds familiar. And it should. The AICPA and the GAO are intentionally moving in the same direction, which is a good thing–no need for competing standards.

A problem arises however.

Say your small business client does not have a person with sufficient education or experience to assume the responsibility for the financial statements, then what? You would no longer be independent and could not provide audit or review services.

Recently I received my Reviewer Focus newsletter from the AICPA (information provided to peer reviewers), and this letter plainly states that auditors must be “satisfied that management has agreed and can assume all management responsibilities.” This includes overseeing the preparation of financial statements. An engagement would be considered “nonconforming” if the auditor lacks independence (due to the client’s lack of requisite SKE). Clearly, the AICPA is placing more emphasis on clients being able to assume responsibility for their financial statements.

I believe this dynamic creates significant problems for small businesses when CPAs review or audit their financial statements. If the independence issue arises, it may be necessary to involve a second person or firm (another CPA or CPA firm). This second party would review the statements on behalf of the client, thus enabling the client to assume responsibility. (Yes, I know this increases the client’s cost–just saying.)


To remain independent, you need to determine that the client has requisite skill, knowledge, and/or experience.

Documentation of Independence

Documentation of your independence is another issue, but a CPA’s lack of documentation does not–in and of itself–lead to an impairment of independence.

You’re familiar with the standard language that goes into most engagement letters with regard to performing nonattest services such as maintaining depreciation schedules or providing tax services. Well now you will add one more: preparation of financial statements. But remember this issue is more than just adding a few words to the engagement letter.

It’s about determining that the client has sufficient SKE.

2014 Compliance Supplement Issued

On May 19, 2014, the Office of Management (OMB) released the 2014 OMB Circular A-133 Compliance Supplement


The Supplement is effective for audits of fiscal years beginning after June 30, 2013, and it supersedes the 2013 Supplement. 

For a list of changes to the supplement, click here.

Many CPAs still use a pencil and pad because they are not aware of what they can do with an electronic document. I made this Adobe Acrobat video in 2011, so it’s a little dated, but it demonstrates annotation (marking up) capabilities. The video just scratches the surface, but I thought I would share it anyway. I hope you discover a new trick or two.

The toolbar displays change as Adobe Acrobat updates its software, so your particular version may not look just like what you see in the video. But you will still be able to make these types of annotations, provided you have Acrobat.

By the way, you need the full version (paid version) of Adobe Acrobat to perform many of the annotation features. You can purchase the software from Amazon (Acrobat XI Standard Win [Download]) or at your local office supply store. I have found it to be an invaluable tool.


Nonprofits: Possible Changes to Net Asset Classifications

On June 12, 2014, the Journal of Accountancy published an article titled Six Key Developments for Not-For-Profit CPAs. The article stated that the FASB plans to release an exposure draft this fall to potentially change the reporting of net assets. Presently standards call for the use of three net asset categories:

  1. unrestricted
  2. temporarily restricted
  3. permanently restricted

The exposure draft is expected to call for the use of two net asset categories:

  1. with donor restrictions
  2. without donor restrictions

What do you think of this potential change in reporting net assets?

Screen Shots with Skitch

If you follow my blog, you already know I am an Evernote (cloud storage) fan. But I must bring another one of their apps to your attention: Skitch. (It’s free.)

Do you ever need to take a screen shot and then point out particular information? The screen shot could be a page from financial statements you are reviewing.  For example:


Or maybe you want to comment on a blog page. Notice some of the features available in the app (arrows, text, icons, box).


You can download the app here. The app is available for the following:

  • Windows desktops
  • Windows 8 (Touch)
  • Mac OS X machines
  • Android mobile devices
  • Apple mobile devices

Once done with your annotations, you can share the screen shot using your email package. On my Windows PC, I keep Skitch in my toolbar (at the bottom of the screen). I open the app, take a screen shot, annotate, print to PDF, save to my desktop, and then share using my email app.

Want to learn how the app works?

Here’s a video for you Apple users:

Directions for Windows users are here.


Mind Mapping and CPAs

Can CPAs be creative? Can we get a Whack on the Side of the Head?

I believe that linear-thinking professionals, like CPAs, can be imaginative.

One tool you can use to tap into your creative abilities is mind mapping. And one of the best mind mapping apps is iThoughts (cost is $10). Below you will see an example of how I used iThoughts to develop a blog post.



Mind Mapping for Fraud

You can also use iThoughts (or other mind mapping software) to aid you in your fraud brainstorming sessions. If you’d rather not buy mind mapping software, just use a physical drawing pad. The creative principles work with or without software.

How to Mind Map

To mind map, simply start with a central thought and add related thoughts (nodes); pictures stimulate more thought and aid in capturing the overall view.

Try it. Who knows? Maybe your creative genius will bloom.

When to Issue an Opinion on Supplementary Information

Sometimes the question arises as to when you should issue an opinion on supplementary information.

The auditor should opine on some supplementary information, but not all.

Opinion Given on Supplementary Information

We know that when supplementary information is derived from or relates directly to, the underlying accounting and other records used to prepare the financial statements, the auditor will usually issue an opinion on the supplementary information. That opinion paragraph ends with wording such as:

In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole.

Opinion Not Given on Supplementary Information

But what if the information is not derived from or does not relate directly to underlying accounting records used to prepare the financial statements (sometimes referred to as “Other Information”)? Examples include:

  • Financial summaries or highlights
  • Employment data
  • Planned capital expenses
  • Financial ratios
  • Names of officers

AU-C Section 720—Other Information in Documents Containing Audited Financial Statements (paragraph .01)–formerly SAS 118–states:

In the absence of any separate requirement in the particular circumstances of the engagement, the auditor’s opinion on the financial statements does not cover other information, and the auditor has no responsibility for determining  whether such information  is properly stated.

The auditor can disclaim an opinion on the “other information” using the following language (AU-C 720, paragraph .A13):

Our audit was conducted for the purpose of forming an opinion on the basic financial statements as a whole. The [identify the other information] is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on it.

With that said, remember, opinions can (sometimes) be rendered on non-accounting data. See my related post.

Can Nonaccounting Information be Included in Supplementary Information?

Can nonaccounting information (e.g., number of units produced related to royalties) be included in supplementary information?


AU-C Section 725—Supplementary Information in Relation to the Financial Statements as a Whole (paragraph .A6) says:

Management may include nonaccounting  information and accounting information that is not directly related to the basic financial statements in a document containing the basic financial statements. Ordinarily, such information would not have been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, the auditor would be unable to opine on the information in relation to the financial statements as a whole. In some circumstances, however, such information may have been obtained or derived from accounting records that have been tested by the auditor (for example, number of units produced related to royalties under a license agreement or number of employees related to a given payroll period). Accordingly, the auditor may be in a position to express an opinion on such information in relation to the financial statements as a whole.


The Minimalist Auditor

Do you like to travel light? Here's some ideas to lessen your load.

Are you a minimalist auditor?

I remember when I would load my audit files on a hand-truck (I’m not kidding), especially for local government audits. I felt like I worked for a moving company rather than a CPA firm.

My back is thankful for paperless software.

In the present age of minimalism, everything is smaller, even the audit gear we use. Scanners, monitors, cell phones, tablets, projectors–all are more compact. For the traveling auditor, this is like manna from heaven.

Let me suggest a few hardware and software ideas to lighten your load.

minimalist auditor

Courtesy of iStockphoto


Fujitsu ScanSnap S1300i Instant PDF Sheet-Fed Mobile Document Scanner

The weight is 4.9 pounds and the cost is $249.99. It has a ten-page document feeder.

If you want a lighter scanner with fewer features, try the ScanSnap S1100, weighing only 12.3 ounces. The cost is $169.99.

Fujitsu ScanSnap S1100 CLR 600DPI USB Mobile Scanner (PA03610-B005)

Can’t spare the traveling space for a scanner? Or maybe you’d rather not spend the money? Buy the cell phone scanning app: Scanbot. The cost is $1.99. Scanbot is available on iPhones and Android phones. The app can scan multiple pages and will–once you tweak the settings–automatically feed output to a cloud product such as Evernote. Alternatively, you can email the scans.


I use a Dell laptop that has a ten-key pad built into the keyboard, so I don’t need a separate adding machine. I use Judy’s TenKey software; the cost is $19.95.

Cell Phone

Apple iPhone 6s

I use an iPhone 6S and love the feel and intelligence of this device. The battery life is substantial and the weight is 6 ounces. It fits in my pant’s pocket.


Most cell phone companies offer Internet hotspots. Since you probably already own a cell phone, there is no need for an additional physical device for an Internet connection. Check with your cell phone company about activating the hotspot. The cost will be about $30 per month.


Apple iPad mini MD529LL/A (32GB, Wi-Fi, Black)

I am an Apple fan, so you know I will recommend the iPad mini which can be purchased for as little as $279 (16GB model) on Amazon. The weight is less than 1 pound.


AAXA P4 P4X Pico Projector, 95 Lumens, Pocket Size, Li-Ion Battery, HDMI, Media Player, 15,000 Hour LED, DLP Projector

The Pico Projector is pocket sized and, at $240, provides you with 125 lumens. The dimensions are 5.6 x 2.7 x 1.2 inches and it weighs 12.8 ounces.

Your Ideas?

How do you lighten your traveling load? Please share your ideas.