AICPA Launches IFRS Certificate Program

Accounting students or professionals looking to build their technical expertise and enhance their value to potential employers should consider enrolling in the AICPA’s IFRS Certificate Program.  With the SEC set to announce their decision regarding the convergence of U.S. GAAP and IFRS later this year, accounting professionals with a working knowledge of IFRS have an enormous professional advantage. The AICPA notes that “current and potential clients and employers will look to the certificate as a measurable standard of IFRS competence.”  

You do not need to be a CPA to enroll in this 42 credit hour curriculum, but you do need to have at least an undergraduate accounting degree or obtain relevant work experience that requires the practical application of accounting principles and concepts. Non-CPAs and non-CAs completing the program will receive an IFRS Award of Educational Achievement.  All courses are presented via a self-study webcast and are available on-demand, covering specific topics such as inventories, PP&E, investment property, intangible assets, revenue recognition, EPS, and the IASB’s governance and conceptual framework.  To learn more about the AICPA’s IFRS Certificate Program, visit http://www.ifrs.com/certificate/index.html.

Career Advice from the Capital Markets

In the Summer 2011 issue of the Pennsylvania CPA Journal, a regular contributor takes an interesting approach to building a professional life. Author David Maturo addresses the disconnect between accounting professionals relying on their technical knowledge to advance their career, when they really need to build their careers as one would think about building a company. In The Company of You: Building Your Professional Life, Maturo observes that the corporation provides a model for successfully functioning in the capitalist markets, and can provide us with a similar form for structuring a satisfying career. In summary, our career path should have the following aspects of a corporation:

• Board and Direction - You need a mission statement and goals to "channel your efforts and focus on an achievable target." You also need a board of investors, bosses, mentors, colleagues who invest in you. Surround yourself with mentors who work outside of your industry or firm, and who aren't afraid to give you constructive criticism or alternative suggestions for your career. Reach out to supervisors and colleagues that are willing to invest in you, by providing you with an opportunity to work on a new client, acquire a new skill, or campaign for your promotion.
• The Revenue Line -Apart from serving external clients in public accounting, we also have internal clients we must answer to, such as partners, managers, and staff. Building good relationships with those we work with on an ongoing basis can support our career progress. We also need to have a strong sales and marketing department, promoting ourselves with a solid resume, professional network, online presence, and self-confidence. Your personal brand is your own PR department. The way you interact with others, dress, communicate via email or over the phone, and deal with mistakes, make up your professional presentation. All these subtle daily behaviors are used by other to judge your competence and potential for leadership. So be careful what your actions say about you.
• The Expense Line - Managing your Finance Department is key to alleviating stress and avoiding being forced to make professional decisions based on salary alone. Effectively managing your personal finances will enable you to focus your attention on more important career decisions other than the size of your paycheck. It's also important for you to invest in yourself to keep up on the latest trends in information technology that can help you stay ahead of the professional curve. I have a friend who is a clinical cardiologist and researcher. He is one of the youngest doctors in his practice, and the only one who has effectively managed his use of IT to the point that it saves him countless hours a week. He has synced his iPad, iPhone, and work computer so that all notes taken during exams, conferences, and meetings are immediately filed on his computer, and can be accessed anywhere from his phone or iPad. He uses his electronic calendar to organize files, reminders, and schedules. IT should be a priority if it can save you many wasted hours on non-value added activities. It's also key for you to have a system of self audit and controls to ensure the quality of your work is consistently good. Lastly, a wellness program for managing your own mental and physical health will keep your work life balance in check, giving you time with family, as well as a chance to relax and creatively think about your future.

You may not be in a position to significantly influence your present organization or profession just yet, but you are the CEO of the Company of You. Taking the same approach to your career as a CEO takes to managing their company, you will be able to manage your professional ambitions and appropriately develop your skills along the way.

The CPA Exam Goes Abroad

In August 2011, the U.S. CPA exam will be offered outside of the U.S. for the first time. The countries in which the exam will be offered include Japan, Bahrain, the United Arab Emirates, Kuwait, and Lebanon. Given the accelerating demand by foreign nationals for taking the exam, the American Institute of CPAs (AICPA), the National Association of State Boards of Accountancy (NASBA), and Prometric have agreed to offer the same CPA exam in the aforementioned countries during a one month window each calendar-year quarter. The exam will be offered in English, and will be open to citizens, permanent residents, and long-term residents of the host countries that have satisfied the requirements to sit for the U.S. CPA exam.  International exam candidates will need to select and apply to a U.S. state board of accountancy to validate that they have satisfied the requirements to sit for the exam in their chosen state of jurisdiction.  The NASBA is now accepting applications for international exam candidates. For more information, visit the AICPA’s website at http://www.aicpa.org/BecomeACPA/CPAExam/Pages/CPAExam.aspx.

PCAOB Releases Potential Changes to Auditor's Report

Last week, the PCAOB issued a concept release presenting four potential changes to the auditor's report on public company financial statements. The changes, open for public comment, include the following:

• Auditor's Discussion and Analysis (AD&A) - Presented as a narrative intended to "facilitate an understanding of the auditor's opinion of the financial statements taken as a whole," according to the PCAOB. This section might include a discussion of audit risks identified, significant management judgments, and critical accounting policies.
• Expanded and requisite use of emphasis paragraphs - While emphasis paragraphs are currently optional, they might be required in a standard auditor's report to point the reader's attention to where significant financial statement items can be found in the financials and related footnotes.
• Auditor assurance on information outside the financial statements - Auditor's may be required to issue an opinion on information such as the management discussion and analysis (MD&A), press releases, or other published financial information.
• Clarification of standard language in the auditor's report - The auditor's report might also clarify the auditor's role and concepts mentioned in a standard auditor's report, such as reasonable assurance, and auditor's responsibilities vs. management's responsibilities.

While each of the above recommendations seem to address the need for investors to have a stronger grasp of the level of assurance provided by an independent audit, I fear any or all of the aforementioned changes could further bury investors in a heap of esoteric language. Studies have shown that few information within the audited financial statements and footnotes is consistently read and understood by analysts and investors, so adding even more audited information and discussion may only add to the current level of confusion.

Given that investors feel they have been duped by public companies, auditors, and hedge funds when so much market capitalization evaporated in the recent recession, I understand the legal concerns of the auditing profession and their regulators. If we audit more and disclose more, how could investors ever be duped again? They would have no excuse for making bad investments, right? The information was all there in front of them. Unfortunately, a clean audit opinion is not equivalent to an analyst's recommendation to buy or hold a security. Perhaps auditors do have it a little too easy only having to issue a pass/fail audit report right now, but I fear that the addition of some of the information suggested by the PCAOB, particularly the AD&A, would confuse investors into thinking that an auditor was making an investment recommendation. We need to be careful not to overwhelm investors. It is not the volume of information, but the relevance of it that investors are in need of.

An Overview of the New Service Organization Control Reports

Organizations that collect, retain, or process information on behalf of other organizations are known as service organizations.  Some of the most familiar types of service organizations widely used by companies are payroll processors, employee benefit plan administrators, and asset custodians. In recent years, there is also a growing reliance on providers of software as a service and cloud computing. Over the past decades, firms conducting audits of companies who use service organizations would rely on the organizations’ production of a Statement of Auditing Standard (SAS) 70 report. These reports would be prepared by the service organizations’ independent auditors and provided to any clients who relied on the service organizations’ information in preparing their own financial statements.

Beginning June 15, 2011, SAS 70 will be superseded by SSAE 16 for U.S. service organizations, which is similar to ISAE 3402 under IFRS.  The new reports are commonly referred to as Service Organization Control (SOC) Reports. There will be three types of SOC reports for companies to consider for issuance, summarized below:

SOC 1 Report – A review of user controls having an impact on clients’ financial reporting, SOC 1 reports will evaluate what is commonly known as ICOFR (internal controls over financial reporting). 

SOC 2 Report – Controls tested in a SOC 2 report will not be linked to financial reporting or financial statement assertions. Instead, SOC 2 reports will evaluate controls that fall under the AICPA Trust Services Principles and Criteria which include security, availability, processing integrity, confidentiality, and privacy.

Both SOC 1 and SOC 2 reports are similar to the former SAS 70 reports in that they list the service organization’s controls, how the auditor tested them, and the results of those tests. They will also include management’s assertions related to the controls tested. They are intended for restricted distribution to clients of the service organization.

SOC 3 Report – The audit work performed for a SOC 3 report is identical to that in a SOC 2, however the report issued merely summarizes management’s assertions and the auditor’s opinion, leaving out the detailed control descriptions and audit procedures. SOC 3 reports are intended to have unrestricted distribution, and those organizations receiving an unqualified opinion are permitted to display a seal on their website indicating the results of their SOC 3 report. 

As more and more organizations rely on service organizations for critical IT functions and processing of financial information, auditors should be familiar with the content of the new SOC reports and how they will impact their clients’ audits.

SEC Considering New Approach to IFRS Convergence: Condorsement

On May 26, 2011, the Securities and Exchange Commission (SEC) published a staff paper in which they offered up for public comment a new mechanism for possible convergence of U.S. Generally Accepted Accounting Principals (GAAP) with International Financial Reporting Standards (IFRS). The approach is being coined "condorsement," and suggests that, should the US adopt IFRS entirely, the Financial Accounting Standards Board (FASB) would act as an advocate representing the U.S. perspective to the International Accounting Standards Board (IASB) in the formation of new IFRSs. The staff paper repeatedly emphasizes that, by putting forth this new approach for consideration, the SEC is not declaring their intent to adopt IFRS. They eagerly state that this is merely one of many options for which they are requesting public comment. The staff paper also notes that the SEC has already thoroughly discussed and received comments on more commonly understood approaches, such as full adoption of IFRS on a specified date, full adoption over a transitional period of several years, and an option for U.S. issuers to apply IFRS or retain U.S. GAAP.

The approach is called condorsement because it fuses elements of a full endorsement method with those of convergence. According to the staff paper, "the framework would retain a U.S. standard setter and would facilitate the transition process by incorporating IFRSs into U.S. GAAP over some defined period of time (e.g., five to seven years). At the end of this period, the objective would be that a U.S. issuer compliant with U.S. GAAP should also be able to represent that it is compliant with IFRS as issued by the IASB. Incorporation of IFRS through the framework would have the objective of achieving the goal of having a single set of high-quality, globally accepted accounting standards, while doing so in a practical manner that could minimize both the cost and effort needed to incorporate IFRS into the financial reporting system for U.S. issuers. It also would align the United States with other jurisdictions by retaining the national standard setter’s authority to establish accounting standards in the United States."

While this is just one of many possible means of moving toward adoption of global accounting standards, the thing I appreciate most in this approach is the emphasis on practicality in minimizing the cost and effort of US issuers to incorporate IFRS. Rather than having a gradual adoption, or a revised U.S. GAAP that minimizes the differences compared to IFRS but still stands apart, this method would enable financial reporting by U.S. issuers to be fully compliant under U.S. GAAP and IFRS. This would make IFRS a truly global set of accounting standards. The concept of condorsement would also have the U.S. playing a collaborative role in the setting of global accounting standards, rather than fighting to stand alone.

We are still a long way off from the SEC's final decision as to if and when they may require U.S. issuers to adopt IFRS in some manner, but the recent staff paper suggests that they are beginning to think outside the box and consider all reasonable options.

CAQ's In-Depth Guide to Public Company Auditing Released

This month, the Center for Audit Quality (CAQ) released the In-Depth Guide to Public Company Auditing designed to give readers who are unfamiliar with financial reporting and auditing a “behind-the-scenes look inside the financial statement audit process to provide further insight into the work the independent auditor performs to issue an audit report.” While intended for non-accountants, I think this guide is also a great resource for accounting students who are preparing to interview for their first public accounting job. This 20 page guide provides a fantastic overview of the specifics of public company audits, such as:
• The key players in a financial statement audit
• Assessing risk
• The Role of materiality in an audit
• The structure and role of an audit team and its members
• Overview of the audit process from beginning (developing an audit strategy) to end (communicating results to management and the Board)
• Example audit procedures
• The audit opinion

While all of these things are likely covered in an undergraduate auditing course, the CAQ Guide offers a thorough overview that would be ideal review material for any student going into a public accounting interview. I found the discussion of materiality, as well as the overview of the audit team to be particularly useful, and something that I did not quite grasp until I was actually working in the field. If you have a thorough mastery of everything in this Guide, you’ll be more than ready to prove to an interviewer that you have what it takes to be a successful auditor.