2005 - The accounting profession faces a number of issues
that we need to contemplate, discuss, and analyze. Answers
to serious issues are often elusive, but the consideration
of solutions always works for the collective benefit.
When a public company has its financial statements restated,
perhaps an independent third party should assign both
the auditors and the audit committee’s financial
expert. This could be paid for through a fund managed
by the Public Company Accounting Oversight Board (PCAOB).
Candidates would be screened and tested on pertinent knowledge
by the SEC or PCAOB; the financial expert would be required
to have specific expertise in the company’s industry.
CPAs know that a company receiving an opinion indicating
substantial doubt about a company’s continuation
as a “going concern” is in bad shape. But
the general public must understand that the phrase “going
concern” means that the company is viable. Instead
of going concern, let us consider the clearer phrase “continuing
We need a national permanent file designed to systematically
reflect all disclosure items. Of primary concern is that
significant accounting policies are set up in the same
order in all financial statements (e.g., the nature of
the business, its use of estimates, etc.). Should a specific
accounting policy not be evident, not only would it not
be in the notes to the financial statements, but the permanent
file would indicate that it is not applicable. This would
promote uniformity in presentation (hopefully in plain
English), and facilitate auditor succession. This file
would be maintained by each successive auditor. An equitable
transfer cost could be put into place.
The signatures of both the current and the predecessor
auditors should be required on the financial statements
of all public companies. Initially this could be required
only for problem audits (e.g., restated financial statements
or companies that continually change auditors).
The word “materiality” is misused and abused.
Its meaning should be clearly disclosed in the financial
statements, the auditor’s report, and the representation
The public’s trust in the accounting profession
is needed. Maybe assignment by an independent third party
of all auditors of public companies would avoid independence
in appearance problems. Assignment could be done by the
SEC or PCAOB based on the expertise of all registered
firms that have sufficient experienced staff.
Statement of Auditing Standards (SAS) 58, Reports
on Audited Financial Statements (AU 508.08), says
in paragraph 3 that “the financial statements referred
to above present fairly.” We need to consider what
“present fairly” means to the general public.
CPE courses could require a test before credit is given,
rather than awarding credit for merely being present.
In addition, CPAs in industry are not currently required
to take CPE. All CPAs should have the same CPE requirements.
New York and Wisconsin are the only states without a 120-hour,
three-year CPE requirement. We should change that.
The audits of nonprofit organizations and governmental
units should be presented in a public forum, not only
to the board.
Finally, updated peer review rules will become effective
January 1, 2005. These rules will enhance peer review,
but not as much as a potential new requirement of peer
review for registration of CPA firms in New York. An independent
and adequately financed accountancy board would help remove
the tarnish and polish the credibility of a time-honored
Crystal, CPA, Freehold, N.J., is an assistant chair
of the NYSSCPA’s Professional Ethics Committee and a
former member of its Peer Review Committee. He has also been
a CPE instructor for FAE since 1992.
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