CPA Scribo Facebook Group: Join Now

If you are interested in some dialog about accounting and auditing issues, I invite you to join my new Facebook group: CPA Scribo.

Why the group? I believe this will give you a community where you can engage with other CPAs and accountants on a one-on-one basis. The communication will be more free-flowing than my blog.

So join and share a thought, a pain, a victory, a challenge, a question. I look forward to getting to know you better.

It’s a closed group, so you will need to ask to join.

The link to join is: https://www.facebook.com/groups/1260820653952216/?ref=bookmarks

New Peer Review Report Language for Peer Reviews Commencing after December 31, 2016

The AICPA Peer Review Board approved changes to the peer review standards in its November 14, 2016 Open Session. The changes are effective for peer reviews commencing on or after January 1, 2017. The key changes are as follows:

  • New peer review report language
  • New representation letter language (this is the representation letter you sign at the conclusion of your peer review)

The new peer review reports looks more like our present audit opinions. Here’s an example.

Peer Review Report with a Peer Review Rating of Pass in a System Review

Report on the Firm’s System of Quality Control

October 31, 2017

To the Partners of Smith & Jones, LLP and the Peer Review Committee of the North Carolina Association of CPAs.

We have reviewed the system of quality control for the accounting and auditing practice of Smith & Jones, LLP (the firm) in effect for the year ended June 30, 2017. Our peer review was conducted in accordance with the Standards for Performing and Reporting on Peer Reviews established by the Peer Review Board of the American Institute of Certified Public Accountants (Standards).

A summary of the nature, objectives, scope, limitations of, and the procedures performed in a System Review as described in the Standards may be found at aicpa.org/prsummary. The summary also includes an explanation of how engagements identified as not performed or reported in conformity with applicable professional standards, if any, are evaluated by a peer reviewer to determine a peer review rating.

Firm’s Responsibility

The firm is responsible for designing a system of quality control and complying with it to provide the firm with reasonable assurance of performing and reporting in conformity with applicable professional standards in all material respects. The firm is also responsible for evaluating actions to promptly remediate engagements deemed as not performed or reported in conformity with professional standards, when appropriate, and for remediating weaknesses in its system of quality control, if any.

Peer Reviewer’s Responsibility

Our responsibility is to express an opinion on the design of the system of quality control and the firm’s compliance therewith based on our review.

Required Selections and Considerations

Engagements selected for review included an engagement performed under Government Auditing Standards, including a compliance audit under the Single Audit Act, and an audit of an employee benefit plan.

As a part of our peer review, we considered reviews by regulatory entities as communicated by the firm, if applicable, in determining the nature and extent of our procedures.

Opinion

In our opinion, the system of quality control for the accounting and auditing practice of Smith & Jones, LLP in effect for the year ended June 30, 2017, has been suitably designed and complied with to provide the firm with reasonable assurance of performing and reporting in conformity with applicable professional standards in all material respects. Firms can receive a rating of pass, pass with deficiency(ies) or fail. XYZ & Co. has received a peer review rating of pass.

Bobbye Kelly & Associates

SSARS 22 Compilation of Pro Forma Infomation

The Accounting and Review Services Committee of the AICPA has issued SSARS 22 Compilation of Pro Forma Information. The effective date of the standard is May 1, 2017.

In the coming days, I will provide a detailed post about this standard. A new compilation report and engagement letter (for pro forma financial statements) are included in SSARS 22.

FASB Issues New Not-For-Profit Financial Standard

The FASB has issued the new not-for-profit standard ASU 2016-14, Presentation of Financial Statements of Not-for-Profit Entities. Click here to see an AICPA overview.

ASU No. 2016-02 Leases Issued by FASB

Accounting Standards Update No. 2016-02, Leases (Topic 842) was issued on February 25, 2016.

Effective Dates

For a public entity, the amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (that is, for a calendar year-end public entity, the changes take effect beginning January 1, 2019).

For this purpose, a public entity is any one of the following:

  1. A public business entity
  2. A not-for-profit entity that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market
  3. An employee benefit plan that files or furnishes financial statements with the SEC.

For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years beginning after December 15, 2020.

Early application of the amendments is permitted for all entities.

To see the new standard, click here.

Reminder Concerning Single Audits and SSARS 21Engagements

Here’s a reminder concerning Single Audits and SSARS 21 engagements.

Auditors will begin using the Uniform Guidance (rather than A-133) for audits of clients with December 31, 2015 year-ends.

The effective date of SSARS 21 is for years ending on or after December 15, 2015. SSARS 21 encompasses the following:

  • Preparation of Financial Statements Engagements (AR-C 70)
  • Compilation Engagements (AR-C 80)
  • Review Engagements (AR-C 90)

Update your engagement letters, forms, and reports for these types of engagement.

 

FASB Issued Two Drafts to Simplify Accounting

The FASB continued its efforts to simplify financial reporting by issuing separate proposals designed to:

  1. simplify the equity method of accounting, and
  2. 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

 

Peer Reviews to Exclude “Preparation Services”

The Accounting and Review Services Committee (ARSC) is still working on the new (proposed at this point) compilation and preparation services standards. I have been asked whether CPA firms will be subject to peer reviews if they only prepare financial statements–under the soon-to-be-issued new standards–and don’t issue compilation reports.

It appears the answer to that question will probably be no (exposure draft now pending–see below).

I just received the AICPA August Peer Review Update and it contains the following:

Peer Review Exposure Draft on new SSARS Services

The Peer Review Board has issued an Exposure Draft that proposes the exclusion of preparation services performed under SSARS from the scope of peer reviews for enrolled firms. Additionally, firms would not be required to enroll in the peer review program if their highest level of service is preparation services performed under SSARS. Paragraph .06 of the Standards currently indicates “an accounting and auditing practice for the purposes of these Standards is defined as all engagements performed under Statements on Auditing Standards (SASs); Statements on Standards for Accounting and Review Services (SSARS); Statements on Standards for Attestation Engagements (SSAEs); Government Auditing Standards (the Yellow Book) issued by the U.S. Government Accountability Office; and engagements performed under Public Company Accounting Oversight Board (PCAOB) standards (see interpretations). Engagements covered in the scope of the program are those included in the firm’s accounting and auditing practice that are not subject to PCAOB permanent inspection.”

My Comments

What does this mean?

If you are a small firm and only prepare financial statements (under the proposed standards), you will not be required to enroll in a peer review program. One possible exception–your state board may require it (but I doubt this will happen). If you issue compilation reports, you will be subject to the peer review standards. (Under the proposed ARSC standards, firms will be able to prepare and issue financial statements without a compilation report; preparing financial statements is a non-attest service.)

When will the new preparation services standard be issued?

I don’t know for sure, but ARSC will meet in November 2014; I expect issuance at that time.

When will the peer review exposure draft be considered?

The Board will consider the proposed changes and the comments received during open session on January 28, 2015. The proposed changes, if approved, will be effective upon approval.

COFAR Uniform Guidance Implementation Webcast – October 2, 2014

The AICPA Governmental Audit Quality Center announced the following:

The Council on Financial Assistance Reform (COFAR) has just announced it will be presenting a Web event titled, Uniform Guidance Implementation:  A Conversation Presented by the Council on Financial Assistance Reform, this Thursday, October 2, 2014, from 1:00 PM – 3:00 PM (Eastern Time).  The event will include moderated sessions with relevant stakeholders covering various aspects of 2 C.F.R 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance for Federal Awards), including internal control; blended funding; procurement; pass-through entities and indirect cost rates; and Indian tribe exceptions.

You do not need to register in advance for this event.  Instead, use the following link on the day and time of the event to access it.

I just received word that the access link for tomorrow’s COFAR Web event has been changed to the following:

http://connectlive.com/events/uniformguidance/.

The following is from me (Charles Hall):

Think of the Uniform Guidance as a consolidation of key federal guidelines (e.g., A-87, A-122, A-133); the old circulars are being replaced by the new guidance.

Keep in mind that the effective date for the Uniform Guidance is December 2014–we are almost there. Entities receiving new federal funds–and thus subject to the cost principles, etc. in the new guidance–should be planning for implementation now. Auditors will, for the most part, be impacted by the changes in their calendar-year 2015 audits–the Uniform Guidance will replace A-133.