What’s the most efficient way to create financial statements with full disclosure?
Is it possible to recall everything said in a meeting and remember every word for years? Well actually, yes.
Using the three tips below, you’ll do just that.
The Livescribe pen records audio in conjunction with your notes. After the session, touch a word in your notes and the audio will play at that point in the conversation, allowing you to hear a select part of the discussion.
Use your smartphone to take snapshots of handouts or notes on a whiteboard. Use scanbot (an iPhone or android app) to take several pictures and then upload them.
AICPA Changes Requirement to Disclose Open Tax Years
The AICPA Center for Plain English Accounting (CPEA) reports the following:
As a result of investigative work conducted by the Center for Plain English Accounting (CPEA), Technical Practice Aid (TPA or TIS) 5250.15, which required an entity to disclose a description of tax years that remain subject to examination regardless of whether an entity has any uncertain tax positions (i.e., unrecognized tax benefits), has been deleted. In researching our recent report titled, Controversy Over the Applicability of the Disclosure Requirement of Open Tax Years: Unintended Consequences and Lessons for All, we communicated with appropriate individuals at the FASB and AICPA on the issues noted in that report. Consequently, members of the FASB and Private Company Council (PCC) said that the guidance in TPA 5250.15, Application of Certain FASB Interpretation No. 48 (codified in FASB ASC 740-10) Disclosure Requirements to Nonpublic Entities That Do Not Have Uncertain Tax Positions, should change and that disclosures of open tax years are necessary only if an entity has unrecognized tax benefits. The March update for AICPA Technical Questions and Answers, which contain TPAs, has deleted TPA 5250.15.
Practitioners also should be aware that it may take a period of time for Peer Review Checklists and AICPA Accounting and Auditing Guides to be updated to reflect the elimination of TPA 5250.15.
Summary of Effect
In short: Entities are not required to disclose open tax years if they do not have material unrecognized tax benefits.
This is interesting since many peer reviews nationwide have included comments about disclosure deficiencies related to this area.
The report from the CPEA is posted on the AICPA with a date of March 24, 2015.
For more information about SSARS 21 Preparation of Financial Statements engagements, check out:
The Power of Pictures in Teaching
You’ve just completed another audit, and you see your realization is 65%. You encourage yourself with the thought that next year things will be different. Next year you won’t have the same unexpected problems. Next year your staff will have more experience. But then you recall thinking the same thing last year, and the year before that. Why does this keep happening?
Low realization (the heavy discounting of standard rates) usually implies our engagement has leaks. So how can we right the ship? Here are a few thoughts.
Leaky Hole 1: Too Much Weight
Boats with light loads move quicker.
During your off-season (if you have one), review the file. Work paper files, like our closets, tend to accumulate unneeded clutter. Eliminate unnecessary work papers that add no value. Useless work papers have a strong tendency to reappear in the future. Why? Staff will often mimic the prior year file.
Leaky Hole 2: Not Identifying Risks
A good captain knows where the shoals are.
If we can identify our risks, we can focus on the essential–that which must be addressed. Doing so may require a change of habits, a change from auditing by automatic pilot to one of doing more work in the beginning stage of the engagement. Identifying risks is hard work and requires a greater level of skill than “beating up the balance sheet.” But risk-based auditing is more effective and efficient.
Risk assessment includes the following:
- Creating effective planning analytics (do variances exist that merit attention?)
- Walk-throughs (understand–really understand–significant processes)
- Understanding the entity (What are the numbers that management and the board focus upon? What keeps management awake at night?)
- Perform your brainstorming session (open discussion will generate better ideas)
Then take these disparate elements and synthesize them into your formal risk assessment.
The result: a plan that identifies and responds to risk.
Leaky Hole 3: No Budget
A good captain has a map (a target).
I’m not concerned with tracking time by audit areas. Doing so may take more time than it’s worth. But I want my audit team to know what the overall target is–the amount of time for the total engagement. And if they meet that goal? Give them a reward. A day off. (Okay, maybe a half day.) Take them out for a nice meal. Provide a small bonus.
Targets create focus.
Rewarding efficiency generates future success (even if we don’t stay at a Holiday Inn Express).
Leaky Hole 4: An Old Boat
Replace old boats.
Is your firm using outdated computers or software?
Here are a few questions to consider:
- Does each staff member have a portable monitor?
- Does the team have a quality scanner?
- Is the team working out of the cloud?
- If your firm is not paperless, why not?
- Are your work papers linked to the trial balance?
- Does your firm provide audit templates by industry specialization?
- Has the audit team received current technology training?
And If You Already Do These Things?
Can the fee be negotiated? If not, it may be time to let go of the engagement. Not all jobs are desirable, and this one may, in fact, inhibit your ability to seek out better opportunities.
FASB Issued Two Drafts to Simplify Accounting
The FASB continued its efforts to simplify financial reporting by issuing separate proposals designed to:
- simplify the equity method of accounting, and
- improve employee share-based payment accounting
Equity Method of Accounting
The exposure draft Investments—Equity Method and Joint Ventures (Topic 323): Simplifying the Equity Method of Accounting, issued Friday, would eliminate the requirement for an equity-method investor to account for the basis difference.
The draft states:
The Board is proposing to eliminate the requirement for an equity method investor to account for the basis Payment difference, which is the difference between the cost of an investment and the investor’s proportionate share of the net assets of the investee. Under existing equity method guidance, an entity determines the acquisition date fair value of the identifiable assets and liabilities assumed in the same manner as for a business combination. The entity’s proportionate share of the difference between the fair value of the investee’s identifiable assets and liabilities assumed and the book value of recorded assets and liabilities generally must be accounted for in net income in subsequent periods.
Share-Based Payment Accounting
The other exposure draft, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, issued Monday, is intended to simplify several aspects of accounting for share-based payment transactions.
The draft states:
The areas for simplification in this proposed Update involve several aspects of the accounting for share-based payment transactions, including:
- the income tax consequences,
- classification of awards as either equity or liabilities, and
- classification on the statement of cash flows
Tech Tip #4: How To Quickly Bring a Quote from an Email into a Response
Do you ever read an email, and a particular sentence elicits a response from you. Often, in responding, we click reply and begin to type, attempting to restate the original thought from the email.
Is there a quick way to copy the relevant sentence into your response? Yes.
First, highlight the words you desire to bring into your response.
Next, click the reply button (as you normally do).
The highlighted sentence appears in your response. Now you can comment on it. Your correspondent will love you since you’ve made it easy for her to understand exactly what you are referring to.
Tech Tip #3: Link Your Work Papers to Your Trial Balances
Many CPA firms link their trial balances to their work papers, but I still see many that do not. The consequence of not linking: Inefficiency. Firms that don’t link will re-create all their work papers every year. It doesn’t have to be that way.
How does linking work?
First, linking assumes your firm is using a paperless software package (the trial balance is a part of your paperless software).
Second, create a work paper in Excel (for example).
Third, link a cell in Excel to a number in your trial balance (say the adjusted balance for a cash account). See your paperless software package instructions for directions (the specifics of how this works is different for each paperless software package, but the concept is the same).
Once your work papers are linked, you can do magic. How? Download your trial balance, and your work papers automatically populate. It’s awesome!
So, for those work papers that look the same from year to year, build your links, and you’ll never have to re-create them again.
After you create these work papers in the first year, you will roll them over for the subsequent year’s engagement; the links will remain. When you download the trial balance for the next year, the numbers will again populate your linked work papers. Then go play some golf–you’ll have more time to do so.