Charles Hall is a practicing CPA and Certified Fraud Examiner. For the last thirty-five years, he has primarily audited governments, nonprofits, and small businesses.
He is the author of The Little Book of Local Government Fraud Prevention, The Why and How of Auditing, Audit Risk Assessment Made Easy, and Preparation of Financial Statements & Compilation Engagements. He frequently speaks at continuing education events.
Charles consults with other CPA firms, assisting them with auditing and accounting issues.
Are you looking for online CPA resources? You’ve come to the right place.
There are plenty of online resources, including audit standards, compilation and review standards, illustrative reports, and fraud prevention information. The AICPA’s audit quality centers also offer resources. Some of them are free, while others require a fee.
Online CPA Resources
Here’s a list of online CPA resources that I commonly use (some AICPA documents require an AICPA membership):
Online access to the most current Yellow Book (free)
AICPA Quality Center Resources
While the following are not free, consider joining audit quality centers if you have a concentration in areas such as governments and benefit plans. Once you join a center, you’ll have online access to their information (e.g., newsletters and alerts). In today’s environment, these memberships are vital. I don’t know how anyone can keep up with all the changes in accounting and auditing standards without resources like these.
I have found the AICPA Governmental Audit Quality Center (GAQC) particularly helpful. They provide timely information alerts to keep you abreast of evolving changes such as those related to Yellow Book and Single Audits.
The Employee Benefit Audit Quality Center is also useful. These audit quality centers provide practice aids and CPE classes relevant to governments and benefit plans.
Another great resource (though not free) is the Center for Plain English Accounting (CPEA). The CPEA provides written responses to your technical questions; the AICPA Technical Hotline listed above is free but they don’t provide written responses, only verbal. The CPEA also provides timely articles about accounting and auditing changes, some of the best I have seen. Their quarterly accounting and auditing CPE update is also quite useful.
Your Online Resources
What online resources do you use as a CPA? Leave a comment.
Seven deadly audit sins can destroy you. These audit mistakes kill your profits and effectiveness.
You just completed an audit project, and you have another significant write-down. Last year’s audit hours came in well over budget, and—at the time—you thought, This will not happen again. But here it is, and it’s driving you insane.
Insanity: doing the same thing year after year but expecting different results.
Are you ready for better results?
Audit Mistakes
Here are seven deadly (audit) sins that cause our engagements to fail.
1. We don’t plan
Rolling over the prior year file does not qualify as planning. Using canned audit programs is not planning.
What do I mean? We don’t know what has changed. Why? Because we have not performed real risk assessment such as current year walkthroughs. We have not (really) thought about current year risks of material misstatement.
Each year, audits have new wrinkles.
Are there any fraud rumors? Has the CFO left without explanation? Have cash balances decreased while profits increased? Does the client have a new accounting program or new staff? Can you still obtain the reports you need? Are there any new audit or accounting standards?
Anticipate issues and be ready for them with a real audit plan.
2. SALY lives
Elvis may not be in the house, but SALY is.
Performing the same audit steps is wasteful. Just because we needed the procedure ten years ago does not mean we need it today. Kill SALY. (No, I don’t mean your staff member; SALY stands for Same As Last Year).
I find that audit files are like closets. We allow old thoughts (clothes) to accumulate without purging. It’s high time for a Goodwill visit. After all, this audit mistake has been with you too long. So ask yourself Are all of the prior audit procedures relevant to this year’s engagement?
Will better planning require us to think more in the early phases of the engagement? Yes. Is this hard work? Yes. Will it result in less overall effort? Yes.
Sometimes the Saly issue occurs because of weak staff.
3. We use weak staff
Staffing your engagement is the primary key to project success. Excellent staff makes a challenging engagement pan out well. Poor staff causes your engagement time to balloon–lots of motion, but few results. Maybe you have smart people, but they need training. Consider AuditSense.
Another audit mistake is weak partner involvement.
4. We don’t monitor
Partners must keep an eye on the project. And I don’t mean just asking, “How’s it going?” Look in the audit file. See what is going on. In-charges will usually tell you what you want to hear. They hope to save the job on the final play, but a Hail Mary often results in a lost game.
As Ronald Reagan once said: Trust but verify.
Engagement partners need to lead and monitor. They also need to provide the right technology tools.
5. We use outdated technology
Are you paperless? Using portable scanners and monitors? Are your auditors well versed in Adobe Acrobat? Are you electronically linking your trial balances to Excel documents? Do you use project management software (e.g., Basecamp)? How about conferencing software (e.g., Zoom)? Do you have secure remote access to audit files? Do you store files securely in the cloud (e.g., Box)? Are you using data mining software such as Idea? Do you send electronic confirmations?
Do your staff members fear you so much that they don’t give you the bad news?
6. Staff (intentionally) hide problems
Remind your staff that bad news communicated early is always welcome.
Early communication of bad news should be encouraged and rewarded (yes, rewarded, assuming the employee did not cause the problem).
Sometimes leaders unwittingly cause their staff to hide problems. In the past, we may have gone ballistic on them–now they fear the same.
And here’s one last audit mistake: no post-engagement review.
7. No post-engagement review
Once our audit is complete, we should honestly assess the project. Then make a list of inefficiencies or failures for future reference.
If you are a partner, consider a fifteen-minute meeting with staff to go over the list.
In this post, I provide an overview of the internal control reporting requirements when no significant deficiencies or material weaknesses are noted in an audit of the financial statements. I also provide guidance for when such an engagement is subject to the Government Auditing Standards (i.e., Yellow Book). You’ll see a video that shows you what the audit opinion and Yellow Book reports look like when both are in play, and there are no issues.
Internal Control Reporting Standards
There are two sets of rules when you perform an audit that is subject to the Yellow Book requirements:
Generally accepted auditing standards from AICPA
Government Auditing Standards (i.e., Yellow Book) from GAO
And only one set of rules if the audit is not subject to the Yellow Book requirements:
Generally accepted auditing standards from AICPA
Consider two scenarios.
1. Perform an audit not subject to Yellow Book
If you perform an audit (not subject to Yellow Book) and have no significant deficiencies or material weaknesses, then no internal control letter is required (for anyone). I refer to this letter as the “SAS 115 letter” since that’s where the original generally accepted auditing rule came from. Some people opt to issue one anyway. But again, this is not required.
In this scenario, you issue one report:
Audit opinion (and no internal control letter is issued)
2. Perform an audit subject to Yellow Book
If you perform an audit that is subject to Yellow Book and have no significant deficiencies or material weaknesses, then no SAS 115 internal control letter is required. Some people opt to issue one anyway.
A Yellow Book report is required (even though there are no significant deficiencies or material weaknesses) and is included in the audited financial statements, usually after the notes to the financial statement.
You do not need to send this report to anyone separately (i.e., the government) since it’s included in the bound audit report.
So, in this scenario, you issue two reports:
Audit opinion, and
Yellow Book report
But what do these reports look like?
Yellow Book Report and Amendments to Audit Opinion
Here is a video that shows you what a Yellow Book reports looks like when there are no significant deficiencies or material weaknesses.
I also show you how to amend your standard audit opinion (governmental example) when the Yellow Book report is provided.
Communicating with a predecessor auditor can be trying. Even so, audit standards require that you (at least try to) contact them.
After not sufficiently vetting a potential new client and paying the price for it, I can tell you, “This part of client acceptance is crucial.” You can avoid many headaches.
In this article, I tell you when to make contact, what inquiries to make, what responses you might receive, how to document the conversations, and how reviewing predecessor work papers will help you audit opening balances.
Let’s start with an example conversation between the prospective and predecessor auditors.
Example Conversation with Predecessor Auditor
“Hi Bill, I am Charles Hall of Johnson & Hitchcock CPAs. I am calling about the 2024 audit of Bird Lighting. They said they would contact you and authorize this conversation. Have they done that?”
“Yes, we heard from them last week. I can respond to your questions.”
So, I ask, “Have there been any illegalities or noncompliance issues you’ve encountered previously?” His response is a hesitant no. I sense Bill is not happy to talk with me (which I understand–we’ve been cross-town competitors for over a decade). He’s responding but is not volunteering any additional information. Probing further, I question the company’s financial condition. Bill admits to cash flow troubles, causing difficulties in compensating accounting staff.
Now, I’m wondering if they have competent accountants.
I ask, “How many journal entries did you propose last year, and were there any disagreements about those?” And he responds, “about 35.” He hesitates before disclosing that a heated debate preceded the posting of two material entries.
We discuss other matters before arranging a meeting to examine their work papers. Bill says, “We’ll make the prior year’s work papers available for viewing in our office on May 4 at 10:00 a.m. You can request copies of work papers, but we reserve the right to refuse. For example, we don’t give copies of our walkthroughs or risk assessments. We’ll also ask that you sign a letter stating that you will not use this information in any way that might harm our firm.”
Now that we’ve visited a typical predecessor auditor conversation let’s see what the audit standards say about this.
When to Initiate the Conversation
Theauditor should initiate this communication before being engaged to perform the engagement.
Why? Because you want to be aware of any potential problem areas before you accept the engagement. For instance, if management is unethical, you want to know that. If management has used fraudulent accounting, being aware of such practices is to your advantage. Consequently, audit standards necessitate communication before the auditor is engaged.
Contacting the Predecessor Auditor
You should initiate communication with the predecessor auditor and make inquiries according to AU-C 210, Terms of Engagement. Such inquiries should include potential fraudulent activities involving management or employees and noncompliance or suspected noncompliance with applicable laws and regulations. Those inquiries might also include asking if the predecessor knows why the auditee is making the change in auditors.
Additional potential problem areas include:
–leadership integrity issues
–combative attitudes
–financial problems
–lack of client responsiveness to requests for information
–excessive number of audit adjustments
–client expectations that you do additional work without compensation
–management override of controls
–disagreements over audit fees
Before establishing contact, the company’s management must authorize the predecessor auditor to respond to the successor auditor’s inquiries. If the potential client does not permit this communication, think twice about doing this audit.
A prospective auditor can make a proposal to do the audit before contacting the predecessor auditor, but can’t accept the engagement (it’s not final) until they have communicated with the predecessor auditor.
Not communicating with the predecessor auditor can be equivalent to walking into a minefield when anticipating a leisurely hike. The more you know as you accept a new client, the better.
The Predecessor Auditor’s Response
Sometimes, the predecessor will not respond, as though you don’t exist. (Makes me think, “E.T., phone home.”) Why? They are probably unhappy that you’ve just taken a client from them. That’s understandable. It may not be professional, but again, it’s understandable. (This is what makes these conversations so difficult.)
The predecessor auditor is to be timely in their responses.
Limited Responses
Other times, the predecessor might give you a limited response. You might think this when there are conversational pauses or stammerings. Such hesitations might indicate that you need to tread carefully and consider whether you should accept the client. For example, is the predecessor privy to information that would be useful to you but potentially damaging to them (i.e., the company sues them for slander)? Sometimes, you don’t know.
Additionally, the predecessor auditor sometimes provides a limited response due to extenuating circumstances, such as pending litigation. In that case, they should say their response is limited per AU-C 210, Terms of Engagement.
Now, let’s think about evaluating the responses.
Evaluate the Responses
The successor auditor should evaluate the implications of the responses received (or not received) and document that information in the audit file. Why? One reason is peer reviewers look for predecessor auditor communication in an initial audit file. You need to prove you at least tried to initiate a conversation.
There’s little you can do when a predecessor auditor is nonresponsive. Even so, document your attempts to communicate. For example, include copies of letters and emails in your audit file.
If the predecessor does respond, consider asking to see their prior year’s audit work papers.
Reviewing Predecessor Audit Work Papers
A customary request by a potential successor auditor pertains to accessing predecessor auditor work papers. Viewing those work papers facilitates verification of opening balances for your new audit if you accept the engagement.
By the way, it is usual for the predecessor to ask you to sign a letter saying that you’ll not use the prior year’s work papers in any manner that might harm them, which is a reasonable request.
The predecessor decides whether you can see any work papers and what they will allow you to review. They might not provide, for example, their walkthroughs. Why? Because it takes a great deal of time to create these, and they may not want to give their competitor free work.
Summary
Not only do professional standards require you to contact the predecessor auditor, but it’s the better part of wisdom for you to do so. No, it’s not a fun process, but you’ll be glad you did. Your peer reviewer will also be happy you followed the audit standards.
In June 2022, the AICPA Auditing Standards Board (ASB)issued Statement on Auditing Standards (SAS) No. 147,Inquiries of the Predecessor Auditor Regarding Fraud andNoncompliance With Laws and Regulations. It is effective for periods beginning on or after June 30, 2023.
In this article, I provide you with four steps to delightful accounting presentations–even if you are a CPA. Yes, this can be done!
If you’ve read the book Presentation Zen, you know that many speakers–without intending to–hide their message. In watching CPE presentations and board presentations, I have noticed that (we) CPAs unwittingly hide our message. How? We present slide decks that look like intermediate accounting textbooks–chock full of facts, but too much to digest. And do we really believe that those attending will take those slides back to the office and study them?
Probably not.
My experience has been those slides end up in the office dungeon, never to be seen again. We have one chance to communicate–in the session.
Four Steps to Delightful Accounting Presentations
It is the presenter’s duty to cause learning. So how can we engage our audience (even those sitting on the back row playing with their cell phones)?Let’s start with the slide deck.
1. Make Simple Slides
Make simple slides.
I try to have no more than two points per slide, and I leave out references to professional standards (at least on the slides).
What happens when you see a slide that looks like it contains the whole of War and Peace? If you’re like me, you may think, “Are you kidding? You want me to consume all of that in the next three minutes. Forget it. I will not even try.” And then you begin to think about your golf game or your next vacation. So, how much information should you include on a slide?
Nancy Duarte recommends the glance test for each slide. “People should be able to comprehend it in three seconds.”
2. Include a picture related to the topic
Include a picture.
For example, if I am presenting to auditors, I might display a picture of someone being bribed. Verbal information is remembered about ten percent of the time. If a picture is included, the figure goes up to sixty-five percent. Quite a difference.
People love stories. If your presentation is about bribes and you have not audited a bribery situation, Google bribes, and you will find all the stories you need. If you can’t find a story, use a hypothetical. Why? You are trying to draw your audience in–then maybe they will put that cell phone down (your most triumphant moment as a speaker!).
Also engage your audience with questions. Stories get the juices going; questions make them dig. And, if they answer you, there is dialog. And what’s the result? Those talking learn, the audience learns, and, yes, you learn.
4. Move
Move. Not too much, but at least some.
A statue is not the desired effect. Moving like Michael Jackson is also not what you desire (moonwalking was never in my repertoire anyway). But movement, yes. I walk slowly from side to side (without moonwalking) and will, at times, move toward the audience when I want to make a point. So, am I constantly roaming? No. Balance is important.
Now, let me provide a few thoughts about presentation software and handouts.
Presentation Software and Handouts
Presentation Software
If you have an Apple computer, let me recommend Keynote as your presentation software. I do think PowerPoint (for you Windows users) has improved, but personally, I prefer Keynote.
Another option—though there is a cost—is using Canva to create your slide deck. Your creativity is almost unlimited with this software—pictures, graphics, templates, colors, resizing, and more. Once the slides are created, you can download them as a PDF. Then present the slides (in the PDF) using the full screen option in Adobe Acrobat. I’ve done this a lot lately. Love it.
Here’s a sample Canva slide:
Handouts
If you need to provide detailed information, give your participants handouts (examples of what you are discussing).
I prefer not to provide copies of slides. Why? Your participants will read ahead. You want to keep your powder dry. If they already know what you’re going to say, they’ll stop listening.