Almost exactly a year ago, the NYSSCPA’s Real Estate Committee and the AICPA Auditing Standards Board worked with the New York City Tax Commission to align one of the city’s real estate forms—TC309, Accountant’s Certification—with the AICPA’s Statement on Auditing Standards (SAS) 122, Clarification and Recodification. The three groups worked out a compromise, as outlined in an article in the January 2013 Trusted Professional.

Form TC309 has to accompany the city’s schedule of income and expenses for rent-producing properties when the parcel has a tentative actual assessed valuation of $1 million or more and income exceeding $100,000, as stated in Form TC201, Income and Expense Schedule for Rent Producing Property. It consists of an independent auditor’s report, which the auditor uses to express an opinion on the schedule of income and expenses on Form TC201.

After considerable discussion, on Dec. 18, 2012, the Society’s Real Estate Committee sent a SAS 122-compliant draft of the independent auditor’s report to the Tax Commission. The commission ultimately agreed to accept two different solutions, both of which the AICPA authored and would meet the guidance in SAS 122.

In brief, as specified in the AICPA-developed guidance, auditors can augment Form TC309 in one of two ways:

The Footnote Solution: Auditors add four footnotes to the form. These note the schedule period ending date, the applicant’s responsibility, a description of audit procedures and an expression of the statement of opinion.

The Attached Report Solution: Auditors write “see attached report” in the footnotes section of Form TC309. Even when they do this, however, auditors must still fully complete form TC309. The commission requires the signature of the engagement partner.

Ideally, everything should have worked out from there—everyone agreed on a revised SAS-compliant Form TC309. But many CPAs have not gotten the message.

Abraham E. Haspel, a member of the Real Estate Committee, said that the Tax Commission has informed the committee that a “substantial number” of CPAs have used an unmodified TC309, and thus, were not in accordance with generally accepted auditing standards (GAAS). That is, they used neither of the above solutions. These omissions have implications beyond the audits themselves. According to Haspel, “Because of last year’s poor experience, it is likely that subsequent peer reviews may focus on audits of NYC certiorari compliance with GAAS.”

A peer review issue
Grace G. Singer, a member of the NYSSCPA’s Peer Review Committee, said that tax certiorari auditors’ reports (TC309) will subject practitioners to the mandatory quality review requirements under New York State Education Law (Article 149, Section 7410, subdivision 4). Under the mandatory quality review provisions, any “attest” services performed pursuant to New York state law, or for any state or municipal department, shall require the firm to undergo an external peer review. Attest services, which are further defined in Section 7401-a.1. of article 149, specifically include audits. Therefore, the tax certiorari audit report qualifies as an attest engagement and is filed pursuant to New York City administrative law. Those sole proprietorship firms or firms with two or fewer accounting professionals who thought their practices may be exempt under Section 7410, subdivision 2, of Article 149 are indeed subject to mandatory quality review under the law for simply performing a tax certiorari audit.

As Singer emphasizes, “It is important for firms to remember that tax certioraris may be picked for peer review and that the auditor’s report must comply with professional standards.”