Analyzing Audit Oversight

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FEBRUARY 2005 - Concerning the November 2004 Publisher’s Column, “Reconciling Image with Reality,” I think Lou Grumet’s proposed changes would be somewhat ineffective. His suggestion that the CPA play the role of the trusted professional is circular reasoning unless one accepts that the CPAs in the school districts with financial irregularities had absolutely no responsibility to discover the problem.

Below are my concerns:

  • Presenting audit results to the board in a public meeting will probably not be effective if board members are neither financially savvy nor capable of asking the right questions.
  • Audit committees can be effective only if they are adequately compensated, trained, and insured. I cannot imagine there will be an overwhelming response for this responsibility.
  • The request for proposal (RFP) is a good idea if implemented effectively and not just window dressing. Mandatory rotation of audit firms every five years would be a better idea.
  • An internal audit function is very expensive and can work only if the internal auditor reports to an independent audit committee.
  • The oversight training is not a practical solution, unless considered with my comment below.

What is missing is oversight over the quality of the audit. I believe that most school districts are too small to effectively implement the mentioned reforms. Thus, the only protection standing between the fiscal management of the school district and upholding the public trust is the trusted independent auditor.

Some knowledge about overseeing the sufficiency and extent of the examination and a more active role by the independent auditors resulting in a comprehensive evaluation of internal controls and search for fraud would seem to be required.

Dennis B. Kremer, CPA, CVA, CFE, CBM
Partner, William Greene & Company
Katonah, N.Y.

Long-Term Effects of Outsourcing

The December 2004 article “Outsourcing Income Tax Returns to India: Legal, Ethical, and Professional Issues” (by Richard G. Brody, Mary J. Miller, and Michael J. Rolleri) is interesting, but the authors do not discuss a key facet of the issues: If more outsourcing occurs, how will the profession be able to train and develop young people to learn and advance their tax skills? It sounds great to mention the alleged cost savings from returns being prepared in other countries, but where we will get the future leaders of the profession who will come after the older CPAs retire?

Outsourcing may seem good from a short-term view, but let’s think about the future of the profession. This could be a matter for the NYSSCPA to study.

Joe Marchbein
Jack P. Fitter, CPA APC
Chesterfield, Mo.

The author responds

We agree with Marchbein’s comment and wish we had emphasized this issue in the body of the article, because it is important. His comment was addressed in the article’s sidebar, under the downsides of outsourcing: “Junior staff no longer get the experience of preparing individual returns.” [See Editor’s Note, below.]

I should also mention that we were in no way endorsing outsourcing; in fact, we were very critical of the current state of affairs, and we suggested that the profession has not done enough in this area. The AICPA has taken some positive steps to address the outsourcing issue, but I think it can take on a greater leadership role.

In addition, I am now doing a survey on outsourcing, looking at two issues:

  • Do taxpayers care if their returns are outsourced?
  • Does their opinion change if their tax returns are outsourced to India?

My hypothesis is that outsourcers have no support for their view that taxpayers do not care about their returns being outsourced, and I hope my study will address this issue directly.

Richard G. Brody, PhD, CPA, CFE

Editor’s Note: For online readers of www.cpajournal.com, the initial link to the referenced sidebar was possibly difficult to find, and was relocated in late December.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



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