How Internal Viruses Affect Accounting Firms

Viruses from your own staff can do great harm

Repeatedly you’ve heard about the threat of external viruses, but has anyone told you about the internal ones? These viruses do their damage quietly, but the effects can be painful.

Picture is courtesy of DollarPhotoClub.com

Picture is courtesy of DollarPhotoClub.com

Let’s look at an example.

Cody works for a public accounting firm, and he’s been looking for a sample fair value note disclosure — you know one that addresses the three levels and describes how fair value is determined. So Cody Googles “fair value disclosure” and Eureka! He finds it. One problem, however. The sample note is wrong. But Cody thinks it’s right, and, in his desire to help others, he emails the fair value note to his associates. The next thing you know, the deficient disclosure appears in twenty sets of financial statements.

Silently, effectively the virus spreads.

One year later, Cody’s firm is having its peer review, and the reviewer sees the faulty note in two sets of financials. Not good. Now, the firm receives a finding for further consideration (commonly referred to as an FFC). Then the firm corrects the fair value disclosure in the next year and clients are saying, “I thought the prior disclosure was correct.” Now your clients lose some trust in your firm, and we all know that trust is the foundation of any business.

Why do these types of viruses spread? Mainly because they come from a trusted source.

How can you stop them? Designate a person (or two) in your firm to vet new information before it is shared. Here are examples of new information or documents that might be reviewed before sharing:

  • Note disclosures
  • Engagement letters
  • Audit forms
  • Sample financial statements
  • Sample management letter comments
  • Sample opinions

Your designated reviewers need appropriate firm resources to aid them in their task. Those resources include:

  • Publications (such as):
    • AICPA audit guides
    • AICPA practice aids
    • PPC’s online books and SMART Practice Aids
  • AICPA’s technical hotline (free)
  • Center for Plain English Accounting (CPEA) (fee-based)

While the AICPA’s technical hotline does not provide written responses, the CPEA does — but there’s a cost.  My firm has used the CPEA for several months now, and I like what they are providing. For CPEA membership information, click here.

Learn from the CPA Scribo newsletter!

Get my free weekly accounting and auditing digest with the latest content.

Powered by ConvertKit

Please note: I reserve the right to delete comments that are offensive or off-topic.

Leave a Reply

Your email address will not be published. Required fields are marked *

2 thoughts on “How Internal Viruses Affect Accounting Firms

  1. Would you mind doing a blog post discussing your experience with CPEA? I have wanted to join for sometime, but haven’t pulled the trigger of trying to persuade the audit partners about doing it yet.

    • John, that’s a good idea. I will see what I can do. We are just moving into our really busy time of the year, so it make take me a little while. Thanks for the suggestion. (I do think membership in the CPEA is worthwhile. I just received some summary updates from them today that I found very helpful.)