audit documentation
Feb 20

Audit Documentation: If It’s Not Documented, It’s Not Done

By Charles Hall | Auditing

Peer reviewers are saying, “If it’s not documented, it’s not done.” Why? Because standards require sufficient audit documentation. And if it’s not documented, the peer reviewer can’t give credit. 

But what does sufficient documentation mean? What should be in our work papers? How much is necessary? This article answers these questions.

audit documentation

In the AICPA’s Enhanced Oversight program, one in four audits is nonconforming due to a lack of sufficient documentation. This has been and continues to be a hot-button peer review issue. And it’s not going away. 

But auditors ask, “What is sufficient documentation?” That’s the problem, isn’t it? The answer is not black and white. We know good documentation when we see it–and poor as well. It’s the middle that is fuzzy. Too often audit files are poor-to-midland. But why? 

First, many times it boils down to profit. Auditors can make more money by doing less work. So, let’s go ahead and state the obvious: Quality documentation takes more time and may lessen profit. But what’s the other choice? Poor work.

Second, the auditor may not understand what the audit requirements are. So, in this case, it’s not motive (make more money), it’s a lack of understanding.

Thirdly, another contributing factor is that firms often bid for work–and low price usually carries the day. Then, when it’s time to do the work, there’s not enough budget (time)–and quality suffers. Corners are cut. Planning is disregarded. Confirmations, walkthroughs, fraud inquiries are omitted. And yes, it’s easier–at least in the short run.

But we all know that quality is the foundation of every good CPA firm. And work papers tell the story–the real story–about a firm’s character. How would you rate your work paper quality? Is it excellent, average, poor? If you put your last audit file on a website and everyone could see it, would you be proud? Or does it need improvement?

Sufficient Audit Documentation According to AU-C 230

Let’s see what constitutes sufficient documentation.

AU-C 230 Audit Documentation defines how auditors are to create audit evidence. It says that an experienced auditor with no connection to the audit should understand:

  • Nature, timing, and extent of procedures performed
  • Results and evidence obtained
  • Significant findings, issues, and professional judgments

While most auditors are familiar with this requirement, the difficulty lies in how to accomplish this. What does it look like?

Experienced Auditor’s Understanding

Here’s the key: When an experienced auditor reviews the documentation, does she understand the work?

Any good communicator makes it her job to speak or write in an understandable way. The communicator assumes responsibility for clear messages. In creating work papers, we are the communicators. The responsibility for transmitting messages lies with us (the auditors creating work papers).  

A Fog in the Work Papers

So what creates fogginess in work papers? We forget we have an audience. Others will review the audit documentation to understand what was done. As we prepare work papers, we need to think about those who will read our work. All too often, the person creating a work paper understands what he is doing, but the reviewer doesn’t. Why? The message is not clear.

Just because I know why I am doing something does not mean that someone else will. So how can we create clarity?

Creating Clarity

Work papers should include the following:

  • A purpose statement (what is the reason for the work paper?)
  • The source of the information (who provided it? where did they obtain it and how?)
  • An identification of who prepared and reviewed the work paper
  • The audit evidence (what was done)
  • A conclusion (does the audit evidence support the purpose of the work paper?)

When I make these suggestions, some auditors push back saying, “We’ve already documented some of this information in the audit program.” That may be true, but I am telling you–after reviewing thousands of audit files–the message (what is being done and why) can get lost in the audit program. The reviewer often (speaking for myself) has a difficult time tieing the work back to the audit program and understanding its purpose and whether the documentation provides sufficient audit evidence.

Remember, the work paper preparer is responsible for clear communication. 

And here’s another thing to consider. You (the work paper preparer) might spend six hours on one document. So, you are keenly aware of what you did. The reviewer, on the other hand, might spend five minutes–and she is trying (as quickly as she can) to understand.

Help Your Reviewers

To help your less informed reviewers:

  1. Tell them what you are doing (purpose statement)
  2. Do it (document the test work)
  3. Then, tell them how it went (the conclusion)

Transaction Area Maps

Here’s an idea from my friend Jim Bennett of Bennett & Associates in Ann Arbor, Michigan.

Include transaction area maps in your file. A summary creates organization and makes it easier to find your work papers. It also provides a birds-eye view of what you have done. Here’s an example:

ACCOUNTS RECEIVABLE WORKPAPER MAP

4-02 Audit Program

4-10 Risk Assessment Analyticals

ACCOUNTS RECEIVABLE AGING

4-20 Customer aging report

4-21 AR break-out of intercompany balances

4-23 AR aging tie in to TB

4-24 Review of AR aging

ACCOUNTS RECEIVABLE CONFIRMATIONS

4-50 Planning worksheet – substantive procedures

4-51 AR confirmation reconciliation

4-52 AR confirmation replies

4-60 Allowance for doubtful accounts

4-70 Intercompany balances and sales to significant customers

4-80 Sales analytics

4-90 Sales cut-off testing

4-95 Revenue recognition 606 support and disclosures

Now let’s move from proper to improper documentation.

Insufficient Audit Documentation

So, what is insufficient audit documentation?

First, let’s look at examples of poor documentation:

  • Signing off on audit steps with no supporting work papers (and no explanation on the audit program)
  • Placing a document in a file without explaining why (what is its purpose?)
  • Not signing off on audit steps
  • Failing to reference audit steps to supporting work papers
  • Listing a series of numbers on an Excel spreadsheet without explaining their source (where did they come from? who provided them?)
  • Not signing off on work papers as a preparer
  • Not signing off on work papers as the reviewer
  • Failing to place excerpts of key documents in the file (e.g., debt agreement)
  • Performing fraud inquiries but not documenting who was interviewed (their name) and when (the date)
  • Not documenting the selection of a sample (why and how)
  • Failing to explain the basis for low inherent risk assessments
  • Key bank accounts and debt are not confirmed
  • Not documenting the reason for not sending receivable confirmations
  • A lack of retrospective reviews
  • A failure to document the current year walkthroughs for significant transaction cycles (the file contains a generic description of controls with no evidence of a current year review)
  • Not documenting COSO deficiencies (e.g., tone at the top, management’s risk assessment procedures)
  • A failure to document risk assessments
  • Low control risk assessments without a test of controls
  • A lack of linkage from the risk assessment to the audit plan
  • No independence documentation though nonattest services are provided

This list is not comprehensive, but it provides examples to consider. This list is based on my past experiences. Probably the worst offense (at least in my mind) is signing off on an audit program with no support.

Strangely, however, poor work papers are not the result of insufficient documentation, but too much documentation. 

Too Much Audit Documentation

Many CPAs say to me, “I feel like I do too much,” meaning they believe they are auditing more than is necessary. To which I often respond, “I agree.”

In looking at audit files, I see:

  • The clutter of unnecessary work papers
  • Files received from clients that don’t support the audit opinion
  • Unnecessary work performed on these extraneous documents

For whatever reason, clients usually provide more information than we request. And then–for some other reason–we retain those documents, even if not needed.

If auditors add purpose statements to each work paper, then they will discover that some work papers are unnecessary. In writing the purpose statement, we realize it has none. Which is nice–now, we can deep-six it.

One healthy exercise is to pretend we’ve never audited the company and that we have no prior year audit files. Then, with a blank page, we plan the audit. Once done, we compare the new plan to prior year files. If there’s any fat, start cutting. 

The key to eliminating unnecessary work lies in performing the following steps (in the order presented):

  1. Perform risk assessment
  2. Plan your audit based on the identified risks
  3. Perform the audit procedures

Too often, we roll the prior year file forward and rock on. If the prior year file has extraneous audit procedures, then we repeat them. This creates waste.

Summary

In summary, audit documentation continues to be a significant peer review problem. We can enhance the quality of our work papers by remembering we are not just auditing. We are communicating. It is our responsibility to provide a clear message.

Additional Guidance

The AICPA also provides some excellent guidance regarding work paper documentation

Also, see my article titled 10 Ways to Make Your Work Papers Sparkle.

SSARS 25
Feb 19

SSARS 25: Materiality and Adverse Conclusions

By Charles Hall | Accounting and Auditing , Preparation, Compilation & Review

The AICPA has issued SSARS 25. It is titled Materiality in a Review of Financial Statements and Adverse Conclusions. Below I tell you how this standard affects your future review engagements.

Materiality in Review Engagements

Until SSARS 25, there was no requirement for you to document materiality in review engagements. Some firms, like my own, decided to do so any way. Others have not. Now, there's no choice. SSARS 25 explicitly requires that we determine and use materiality. 

Makes sense. The accountant's conclusion says we are not aware of any material modifications that should be made. The conclusion paragraph follows:

Accountant's Conclusion
Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in accordance with accounting principles generally accepted in the United States of America. 

It would be difficult to plan or conclude a review engagement without knowing what materiality is. SSARS 25 requires that  we design and perform analytical procedures and inquiries to address all material items in the financial statements. This includes disclosures.

Next, you will see that the standard now permits adverse conclusions.

Adverse Conclusions in Review Engagements

In the past, adverse conclusions in a review engagement were not allowed. SSARS 25 changes this. If the financial statements are materially and pervasively misstated, you can issue an adverse conclusion.

SSARS 25 provides an illustrative accountant's review report with an adverse conclusion. (See illustration 7 on pages 85 and 86 of SSARS 25.) That example states the financial statements are not in accordance with accounting principles generally accepted in the United States of America.

Here's the adverse review report conclusion:

Adverse Conclusion
Based on my (our) review, due to the significance of the matter described in the Basis for Adverse Conclusion paragraph, the financial statements are not in accordance with accounting principles generally accepted in the United States of America.

One more thing, SSARS 25 requires a statement in the review report regarding independence.

SSARS 25

Independence in Review Reports

Independence is still required to perform a review engagement. What is different, however, is the accountant must include a statement in the review report saying he or she is independent. That phrase, to be included in the Accountant's Responsibility section of the report, reads as follows:

We are required to be independent of ABC Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements related to our review.

See examples of the independence wording in the illustrative reports in SSARS 25. Those reports start on page 75 of the standard.

So when is SSARS 25 effective?

SSARS 25 Effective Date 

The effective date for SSARS 25 is for periods ending on or after December 15, 2021. Early implementation is permitted.

audit risk assessment
Feb 15

Audit Risk Assessment: The Why and the How

By Charles Hall | Auditing

Today we look at one of most misunderstood parts of auditing: audit risk assessment.

Are auditors leaving money on the table by avoiding risk assessment? Can inadequate risk assessment lead to peer review findings? This article shows you how to make more money and create higher quality audit documentation.

risk assessment

Audit Risk Assessment as a Friend

Audit risk assessment can be our best friend, particularly if we desire efficiency, effectiveness, and profit—and who doesn’t?

This step, when properly performed, tells us what to do—and what can be omitted. In other words, risk assessment creates efficiency.

So, why do some auditors (intentionally) avoid audit risk assessment? Here are two reasons:

  1. We don’t understand it
  2. We're creatures of habit

Too often auditors continue doing the same as last year (commonly referred to as SALY)--no matter what. It’s more comfortable than using risk assessment.

But what if SALY is faulty or inefficient?  

Maybe it’s better to assess risk annually and to plan our work accordingly (based on current conditions).

Are We Working Backwards?

The old maxim “Plan your work, work your plan” is true in audits. Audits—according to standards—should flow as follows:

  1. Determine the risks of material misstatements (plan our work)
  2. Develop a plan to address those risks (plan our work)
  3. Perform substantive procedures (work our plan)
  4. Issue an opinion (the result of planning and working)

Auditors sometimes go directly to step 3. and use the prior year audit programs to satisfy step 2. Later, before the opinion is issued, the documentation for step 1. is created “because we have to.”

In other words, we work backwards.

So, is there a better way?

A Better Way to Audit

Audit standards—in the risk assessment process—call us to do the following:

  1. Understand the entity and its environment
  2. Understand the transaction level controls
  3. Use planning analytics to identify risk
  4. Perform fraud risk analysis
  5. Assess risk

While we may not complete these steps in this order, we do need to perform our risk assessment first (1.-4.) and then assess risk.

Okay, so what procedures should we use?

Audit Risk Assessment Procedures

AU-C 315.06 states:

The risk assessment procedures should include the following:

  • Inquiries of management, appropriate individuals within the internal audit function (if such function exists), others within the entity who, in the auditor's professional judgment, may have information that is likely to assist in identifying risks of material misstatement due to fraud or error
  • Analytical procedures
  • Observation and inspection

I like to think of risk assessment procedures as detective tools used to sift through information and identify risk.

Risk assessment

Just as a good detective uses fingerprints, lab results, and photographs to paint a picture, we are doing the same.

First, we need to understand the entity and its environment.

Understand the Entity and Its Environment

The audit standards require that we understand the entity and its environment.

I like to start by asking management this question: "If you had a magic wand that you could wave over the business and fix one problem, what would it be?"

The answer tells me a great deal about the entity's risk.

I want to know what the owners and management think and feel. Every business leader worries about something. And understanding fear illuminates risk.

Think of risks as threats to objectives. Your client's fears tell you what the objectives are--and the threats. 

To understand the entity and its related threats, ask questions such as:

  • How is the industry faring?
  • Are there any new competitive pressures or opportunities?
  • Have key vendor relationships changed?
  • Can the company obtain necessary knowledge or products?
  • Are there pricing pressures?
  • How strong is the company’s cash flow?
  • Has the company met its debt obligations?
  • Is the company increasing in market share?
  • Who are your key personnel and why are they important?
  • What is the company’s strategy?
  • Does the company have any related party transactions?

As with all risks, we respond based on severity. The higher the risk, the greater the response.

Audit standards require that we respond to risks at these levels:

  • Financial statement level
  • Transaction level

Responses to risk at the financial statement level are general, such as appointing more experienced staff for complex engagements.

Responses to risk at the transaction level are more specific such as a search for unrecorded liabilities.

But before we determine responses, we must first understand the entity's controls.

Understand Transaction Level Controls

We must do more than just understand transaction flows (e.g., receipts are deposited in a particular bank account). We need to understand the related controls (e.g., Who enters the receipt in the general ledger? Who reviews receipting activity?). 

So, as we perform walkthroughs or other risk assessment procedures, we gain an understanding of the transaction cycle, but—more importantly—we gain an understanding of controls. Without appropriate controls, the risk of material misstatement increases.


 AU-C 315.14 requires that auditors evaluate the design of their client's controls and to determine whether they have been implemented. However, AICPA Peer Review Program statistics indicate that many auditors do not meet this requirement. In fact, noncompliance in this area is nearly twice as high as any other requirement of AU-C 315 - Understanding the Entity and Its Environment and Assessing the Risk of Material Misstatement.


Some auditors excuse themselves from this audit requirement saying, "the entity has no controls."  


All entities have some level of controls. For example, signatures on checks are restricted to certain person. Additionally, someone usually reviews the financial statements. And we could go on.


The AICPA has developed a practice audit that you'll find handy in identifying internal controls in small entities.


The use of walkthroughs is probably the best way to understand internal controls.

Sample Walkthrough Questions 

As you perform your walkthroughs, ask questions such as:

  • Who signs checks?
  • Who has access to checks (or electronic payment ability)?
  • Who approves payments?
  • Who initiates purchases?
  • Who can open and close bank accounts?
  • Who posts payments?
  • What software is used? Does it provide an adequate audit trail? Is the data protected? Are passwords used?
  • Who receives and opens bank statements? Does anyone have online access? Are cleared checks reviewed for appropriateness?
  • Who reconciles the bank statement? How quickly? Does a second person review the bank reconciliation?
  • Who creates expense reports and who reviews them?
  • Who bills clients? In what form (paper or electronic)?
  • Who opens the mail?
  • Who receipts monies?
  • Are there electronic payments?
  • Who receives cash onsite and where?
  • Who has credit cards? What are the spending limits?
  • Who makes deposits (and how)?
  • Who keys the receipts into the software?
  • What revenue reports are created and reviewed? Who reviews them?
  • Who creates the monthly financial statements? Who receives them?
  • Are there any outside parties that receive financial statements? Who are they?

Understanding the company’s controls illuminates risk. The company’s goal is to create financial statements without material misstatement. And a lack of controls threatens this objective.

So, as we perform walkthroughs, we ask the payables clerk (for example) certain questions. And—as we do—we are also making observations about the segregation of duties. Also, we are inspecting certain documents such as purchase orders.

This combination of inquiries, observations, and inspections allows us to understand where the risk of material misstatement is highest.

In a recent AICPA study regarding risk assessment deficiencies, 40% of the identified violations related to a failure to gain an understanding of internal controls.

40%
failure to gain understanding of internal controls

Need help with risk assessment walkthroughs?

See my article Audit Walkthroughs: The What, Why, How, and When.

Another significant risk identification tool is the use of planning analytics.

Planning Analytics

Use planning analytics to shine the light on risks. How? I like to use:

  • Multiple-year comparisons of key numbers (at least three years, if possible)
  • Key ratios

In creating planning analytics, use management’s metrics. If certain numbers are important to the company, they should be to us (the auditors) as well—there’s a reason the board or the owners are reviewing particular numbers so closely. (When you read the minutes, ask for a sample monthly financial report; then you’ll know what is most important to management and those charged with governance.)

You may wonder if you can create planning analytics for first-year businesses. Yes, you can. Compare monthly or quarterly numbers. Or you might compute and compare ratios (e.g., gross profit margin) with industry benchmarks. (For more information about first-year planning analytics, see my planning analytics post.)

Sometimes, unexplained variations in the numbers are fraud signals.

Identify Fraud Risks

In every audit, inquire about the existence of theft. In performing walkthroughs, look for control weaknesses that might allow fraud to occur. Ask if any theft has occurred. If yes, how?

Also, we should plan procedures related to:

  • Management override of controls, and
  • The intentional overstatement of revenues

My next post—in The Why and How of Auditing series—addresses fraud, so this is all I will say about theft, for now. Sometimes the greater risk is not fraud but errors.

Same Old Errors

Have you ever noticed that some clients make the same mistakes—every year? (Johnny--the controller--has worked there for the last twenty years, and he makes the same mistakes every year. Sound familiar?) In the risk assessment process, we are looking for the risk of material misstatement whether by intention (fraud) or by error (accident).

One way to identify potential misstatements due to error is to maintain a summary of the larger audit entries you’ve made over the last three years. If your client tends to make the same mistakes, you’ll know where to look.

Now it’s time to pull the above together.

Creating the Risk Picture

Once all of the risk assessment procedures are completed, we synthesize the disparate pieces of information into a composite image

Synthesis of risks

What are we bringing together? Here are examples:

  • Control weaknesses
  • Unexpected variances in significant numbers
  • Entity risk characteristics (e.g., level of competition)
  • Large related-party transactions
  • Occurrences of theft

Armed with this risk picture, we can now create our audit strategy and audit plan (also called an audit program). Focus these plans on the higher risk areas.

How can we determine where risk is highest? Use the risk of material misstatement (RMM) formula.

Assess the Risk of Material Misstatement

Understanding the RMM formula is key to identifying high-risk areas.

What is the RMM formula?

Put simply, it is:

Risk of Material Misstatement = Inherent Risk X Control Risk

Using the RMM formula, we are assessing risk at the assertion level. While audit standards don’t require a separate assessment of inherent risk and control risk, consider doing so anyway. I think it provides a better representation of your risk of material misstatement.

Here's a short video about assessing inherent risk.

And another video regarding control risk assessment.

Once you have completed the risk assessment process, control risk can be assessed at high--simply as an efficiency decision. See my article Assessing Audit Control Risk at High and Saving Time

The Input and Output

The inputs in audit planning include all of the above audit risk assessment procedures.

The outputs (sometimes called linkage) of the audit risk assessment process are:

  • Audit strategy
  • Audit plan (audit programs)
Linking risk assessment to audit planning

We tailor the strategy and plan based on the risks..

In a nutshell, we identify risks and respond to them.

(In a future post in this series, I will provide a full article concerning the creation of audit strategy and plans.)

Next in the Audit Series

In my next post, we’ll take a look at the Why and How of Fraud Auditing. So, stay tuned.

If you haven’t subscribed to my blog, do so now. See below.


changes in accounting for equity securities
Feb 14

ASU 2016-01 – Changes in Accounting for Equity Securities

By Charles Hall | Accounting

Are you aware of the coming changes in accounting for equity securities?

In the past, FASB required that changes in the fair value of available-for-sale equity investments be parked in accumulated other comprehensive income (an equity account) until realized--that is, until the equity investment was sold. In other words, the unrealized gains and losses of equity investments were not recognized in net income until the investments were sold. This is about to change.

Changes in equity investments will generally be reflected in net income as they occur--even before the equity investments are sold. 

The guidance for classifying and measuring investments in debt securities is unchanged.

changes in accounting for equity securities

Changes in Accounting for Equity Securities

First, ASU 2016-01 removes the current guidance regarding classification of equity securities into different categories (i.e., trading or available-for-sale)

Secondly, the new standard requires that equity investments  generally be measured at fair value with changes in fair value recognized in net income (see exceptions below). Companies will no longer recognize changes in the value of available-for-sale equity investments in other comprehensive income (as we have in the past).

Exceptions

ASU 2016-01 generally requires that equity investments be measured at fair value with changes in fair value recognized in net income. There are some equity investments that are not treated in this manner such as equity method investments and those that result in consolidation of the investee.

Is the accounting for equity investments without readily determinable fair values different? It can be.

Equity Investments without Readily Determinable Fair Values

An entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment.  This election should be documented at the time of adoption (for existing securities) or at the time of purchase for securities acquired subsequent to the date of adoption. The alternative can be elected on an investment-by-investment basis.

Why make the election to measure equity investments that do not have readily determinable fair values at cost minus impairment? Because of the difficulty of determining the fair value of such investments. This election will probably be used by entities that previously carried investments at cost. 

ASU 2016-01 requires that equity investments without readily determinable fair values undergo a one-step qualitative assessment to identify impairment (similar to what we do with long-lived assets and goodwill). 

At each reporting period, an entity that holds an equity security shall make a qualitative assessment considering impairment indicators to evaluate whether the investment is impaired. Impairment indicators that an entity considers include, but are not limited to, the following:

  • A significant deterioration in the earnings performance, credit rating, asset quality, or business prospects of the investee
  • A significant adverse change in the regulatory, economic, or technological environment of the investee
  • A significant adverse change in the general market condition of either the geographical area or the industry in which the investee operates
  • A bona fide offer to purchase, an offer by the investee to sell, or a completed auction process for the same or similar investment for an amount less than the carrying amount of that investment
  • Factors that raise significant concerns about the investee’s ability to continue as a going concern, such as negative cash flows from operations, working capital deficiencies, or noncompliance with statutory capital requirements or debt covenants.

So what happens if there is an impairment?

321-10-35-3 of the FASB Codification states, "An equity security without a readily determinable fair value that does not qualify for the practical expedient to estimate fair value in accordance with paragraph 820-10-35-59...shall be written down to its fair value if a qualitative assessment indicates that the investment is impaired and the fair value of the investment is less than its carrying value." (820-10-35-59 deals with measuring the fair value of investments in certain entities that calculate net asset value per share.)

How is the change in value to be reflected in the income statement?

If an equity security without a readily determinable fair value is impaired, the entity should include the impairment loss in net income equal to the difference between the fair value of the investment and its carrying amount.

Presentation of Financial Instruments

Entities are to present their financial assets and liabilities separately in the balance sheet or in the notes to the financial statements. This disaggregated information is to be presented by:

  • Measurement category (i.e., cost, fair value-net income, and fair value-OCI
  • Form of financial asset (i.e., securities or loans and receivables)

So, financial assets measured at fair value through net income are to be presented separately from assets measured at fair value through other comprehensive income.

Debt Securities Accounting 

U.S. GAAP for classification and measurement of debt securities remains the same. Show unrealized holding gains and losses on available-for-sale debt securities in other comprehensive income.

Disclosure Eliminated - Financial Instruments Measured at Amortized Cost

ASU 2016-01 removes a prior disclosure requirement. In the past, entities disclosed the fair value of financial instruments measured at amortized cost. Examples include notes receivables, notes payable, and debt securities. ASU 2016-01 removes this disclosure requirement for entities that are not public business entities

Effective Dates for ASU 2016-01

ASU 2016-01 says the following concerning effective dates:

For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.

For all other entities including not-for-profit entities and employee benefit plans within the scope of Topics 960 through 965 on plan accounting, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. All entities that are not public business entities may adopt the amendments in this Update earlier as of the fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.

Also, the provision exempting nonpublic entities from the requirement to disclose fair values of financial instruments can be early adopted.

Initial Accounting

An entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption.

The amendments related to equity securities without readily determinable fair values (including disclosure requirements) should be applied prospectively to equity investments that exist as of the date of adoption of ASU 2016-01.

readers digest - information for CPAs
Feb 14

Reader’s Digest: Information for CPAs

By Charles Hall | Accounting and Auditing , Technology

Here are a few articles (and one TED talk) that I believe you will find of interest as a CPA.

readers digest - information for CPAs

What AI Is--and Isn't

This TED talk provides you with a better understanding of artificial intelligence (AI). Educator and entrepreneur Sebastian Thrun is interviewed by Chris Anderson. Watch What AI Is--And Isn't. In the talk, Sebastian discusses how Udacity students created self-driving code in forty-eight hours.. In another AI example, he demonstrates the use of AI to diagnose skin cancer--even better than board-certified dermatologists. 

Revenue Recognition: A Private Company Disclosure Guide

Many of you are in the middle of adopting ASC 606 - Revenue from Contracts with Customers. As you have discoverd, there are many new disclosures to include in your financial statements. If you're looking for 606 disclosure examples for private companies, you'll find them here. Liz Gantnier with Dixon Hughes Goodman has created a wonderful guide. See section D. 

Langley Air Force Base Secretary Faked Payroll for 17 Years, Giving Herself an Extra $1.46 Million

This articles proves again that fraud schemes don't have to be complicated to be successful. In 2017, the fraudster's base pay was $51,324 but she took home $119,585. Between 2001 and 2018, she falsely claimed 47,8247 overtime hours. Read the article here.

Lease Accounting: Bus Example

This article provides a great summary of GASB 87 lease journal entries. It also shows you how to compute the right-of-use asset and lease liability. Check out Lease Accounting: Bus Example from BakerTilly. (You'll see a link to download the presentation.) If you audit governments or work for one, you'll find this article useful. The effective date of GASB 87 is years beginning after December 15, 2018. 

White House proposes folding PCAOB into SEC by 2022

The White House is proposing to fold the PCAOB into the SEC. Read about it here in an Accounting Today article.

Book Recommendations

If you missed my book recommendations last month, you'll see five that I recommend here. They will make you a better CPA--and person.

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