I have spent a fair part of the last few weeks being frustrated.. The initial problem with being frustrated is that it is a self-inflicted condition. Indulge me for a bit and let me explain the source of my frustration. It is becoming increasingly clear to me that the is a downside to the rapid improvements in technology and the ability to product slick-looking financial statements. Let me be very careful here, if you are not a licensed certified public accountant [“CPA”] and that means education requirements done, exam passed, experience completed, and license issued and current with CPE, etc. you don’t have read any further.It does NOT mean the you are exempt from the rest of this discussion, it means that you LACK the required credential to be associated with financial statements in the United States whether they are audited, reviewed, compiled with a report, or compiled without a report. We should be very clear in stating that for the purposes of this discussion, if you are an Enrolled Agent and not a CPA you need to be extra careful.
If you are reading this and you lack a current working understanding of the definition of each those terms, you are playing with fire, and it could include criminal charges and prison time. The place to start gaining and understanding of the topic under discussion is contained in Review Services Committee – Statement on Standards for Accounting and Review Services (SSARS) No. 21, Statement on Standards for Accounting and Review Services: Clarification and Recodification. SSARS No. 21 clarifies and revises the standards for reviews, compilations and engagements to prepare financial statements. It also includes significant revisions that affect the standards for accountants in public practice who prepare financial statements for their clients.
When I searched the Xero Help, Guide and Community for SSARS-21 I found NADA…ZERO pardon the pun and that is ok. Xero is a software vendor and not a professional firm. The use of term professional firm, in the United States refers to CPA’s. While there certainly some talented bookkeepers, for the purposes of SSARS-21 bookkeepers are not professionals, let me say that again…ARE NOT PROFESSIONALS. The is no certification out there or special dispensation that will permit a bookkeeper to be associated with financial statements. [The AICPA has a tremendously helpful page of information related to SSARS-21 which can be accessed here.] This is not the place for a minute discussion of all the provisions contained in SSARS-21.
Any CPA doing this type of work should be damn sure that they have an up to date set of AICPA Professional Standards and the SSARS-21 guidance in their offices. The AICPA CPA2BIZ website has an entire collection of SSARS-21 goodies including books, software, seminars and underwear which you can find here. We dropped $2,500 the last time we visited that page to acquire everything we needed to meet the professional standards.
Let’s say you buy all of that stuff, how do the authorities, or the public know that you didn’t just leave them siting on the shelf. Glad you asked, that’s what a fun process called PEER REVIEW is all about. The first questions that any prospective client should ask before they let you start yammering about “beautiful accounting software”, and all of the other marketing BS are:
- Is your firm a member of the AICPA Private Companies Practice Section [“PCPS”. An absolutist statement, every single one of the quality CPA firms are members of PCPS, or the public company version, “PCAOB”.
- The second question is does your firm maintain a system of quality control over its accounting an audit practice. If yes, may I review a copy of
- The AICPA has issued the Financial Reporting Framework for Small- and Medium-Sized Entities. The FRF for SMEs™ accounting framework is designed for America’s small business community. It delivers financial statements that provide useful, relevant information in a simplified, consistent, cost-effective way. The FRF for SMEs™ framework may be used when GAAP financial statements are not required. Does your firm have a copy of the FRF for SMEs™ Toolkits for CPAs and may review the compliance questionnaires?
- Has your firm undergone a peer review with the past three years and please provide me with a copy of the report? If the firm has an unqualified report, you are good to go. If exceptions were note, we are all human, and there is a process for getting them fixed. If a firm has exceptions in their report and can’t provide a plausible explanation of where they are in the process of curing the errors, you should not walk but run away from that firm as you would if you found yourself consorting with a disease riddle concubine with open sores and gangrene. There is an entire page of resources that AICPA has compiled which deals with all aspects of peer review.
- The engagement letters and management representation letters which are built into Xero and the Practice Manager are a great start..psst…neither of the documents meet the required standards for use in the United States which means some work and a whole lot of $$ is involved.
- While we are on the subject, I have never done an audit in my life, I have always been a “tax guy”.We are exempt, and have regular peer reviews, and for a moderate sized firm, it costs us $30K/year to meet the most basic of the professional standards.
- The next question ought be, does your firm have professional liability insurance that covers your accounting and attest practice of at least $1M. If they don’t refer to the concubine rule above. A professional liability carrier will generally hold a CPA firm’s “feet to the fire” to insure that they are in compliance with all of the rules.
My sense is that is enough of dose of professional practice management for CPA’s in one sitting. If you are located outside the United States, the ICA in the UK has similar rules. There are enough of you “down under” folks to explain the applicable rules.
The summary on this portion of the discussion is…for all of the slick millennial types that are facile with technology, and are crowing about all of us old folks leaving the accounting profession and retiring because you guys are taking over. If your firm and again that is professionals only, [bookkeepers don’t count a their work should supervised and reviewed by a professional] doesn’t have every single piece of professional standards compliance, including peer review and SSARS-21 compliance in order permit me to suggest that you SHUT THE HELL UP, find some adult supervision from one of us old CPAs and “shape up or ship out”. I will say that I have asked 20 Xero US Accounting Partners about this subject this week and we are the only one that is fully in compliance. My bet is that there are a bunch older CPA in firms that aren’t making much noise that are in compliance.
If you are one of those CPA’s we are more than willing to share what we know to help with your professional development even if we compete for the same accounts.I am proud to have been a CPA for 35 years…..that means I am probably at the midpoint of my career, and what keeps me going is passing the knowledge and skills on to the profession’s next generation. My frustration is greatly reduced, and I hope it isn’t too difficult to understand the reason for my intensity. The next one of these blogs I write is going to address professional standards and management in tax practice. If anyone needs official guidance, either Ed Carl or Jina Etienne from AICPA tend to be online all the time during the week. I would like to use this moment to apologize to Armando Balbin he knows why and that is sufficient.
This blog is being published prior to being seen, reviewed etc. by anyone associated with Xero…the subject of this blog has nothing to do with them. It is product entirely of the thing that sits on top on my shoulders.. However, every firm should expect to address the topic. A CPA could very quickly lose their certificate or get slugged with a huge fine for non-compliance.