Top Three Accounting and Auditing Issues: Peeling the Onion
Recent surveys have shown that the top three issues for professional CPAs are:
1. Keeping Up with the Effects of new Federal and State Regulations
2. Keeping Up with the Complexities of Tax Laws
3. Finding Qualified Staff/Employees
These issues all have sub issues that are important. When we drill down into the issues we come across the top three accounting and auditing issues just below the surface. This is similar to “peeling an onion” to get to the heart of the issues. Other issues also arise such as:
- Succession Planning
- Seasonal workload compression
Nevertheless, the top three A & A issues always come back to changes in generally accepted accounting standards (GAAP), changes to generally accepted auditing standards (GAAS), and changes to compilation and review standards (SSARS). Some have said the overarching theme to all this is “standards overload.” Whether one is employed in public practice, industry, government, or education, the same “standards overload” concerns always seem to surface. “Standards overload” is said to be one of the primary reasons for the rise of the concept of “other comprehensive basis of accounting” (OCBOA).
There is growing appeal in the accounting profession to find an alternative for small businesses to some of the measurement and disclosure requirements of GAAP. We see this in the Private Company Council (PCC) with the FASB. Mr. Russell G. Golden’s, Chairman of the FASB, goals include simplicity and clarification of GAAP.
One solution often mentioned is the use of OCBOA financial statements. In 1981, the AICPA's Special Committee on Accounting Standards Overload was formed to consider alternative means of providing relief from accounting standards that are not cost-effective, particularly for small, closely held businesses.
So the nature of the problem in finding the top three issues seems to be in finding which of the exact standards of GAAP, GAAS, or SSARS are the top three issues.
In its final report published in 1983, the committee concluded:
“Small, nonpublic entities can gain some measure of relief from accounting standards overload by issuing compiled, reviewed, or audited financial statements prepared on a comprehensive basis of accounting other than GAAP in accordance with existing disclosure and measurement standards and with the existing reporting requirements for CPAs”.
Based on the surveys, articles, and emails from knowledgeable entities and sites, one may conclude that the top three issues for the CPA profession are:
1. Revenue Recognition
2. Clarified Auditing Standards
3. Statement on Standards for Accounting and Review Services, SSARS 21
All of these have very important subsets of problems. For instance, the Revenue Recognition standards as set out in ASU 2014-09 are simple in appearance with five steps to help one stay with the core values of the accounting standard. However, the application of GAAP for revenue is increasingly difficult as the complexity of the contracts increase.
Another issue under Revenue Recognition is the problem with leases and financial instruments. The FASB has the ASU entitled “Leases” ready to be issued, but the issues with revenues for the lessor appear to be holding back its release. The only reason “Leases” is not in the top three issues is simply because it has not been finalized and released as of this date. The same is true of the problems with financial instruments. For instance, when the fair value of a financial instrument changes, it will give rise to unrealized gains or losses. They will generally be placed into net income. The reconciliation to the Revenue Recognition release and the proper disclosures including impairment issues seem to be delaying its release as well.
For Clarified Auditing Standards, the auditor must deal with a myriad of small changes. Each change is important, and the larger changes may be substantive. The auditor is faced with having to address all the changes because they may cause a tweaking or change to the audit programs, policies, and procedures that the auditor must deal with during the engagement. The days of “SALY” or “same as last year” have gone and are now replaced with current and industry specific standards.
SSARS 21 has redefined a compilation. In 1978, auditors and accountants had to deal with only two standards, “audited or unaudited financials”. In 1978, the standards for unaudited were split into compilation and review. Because the definitions were sometimes confusing, the standards were hard to define. In 2001, this was alleviated by SSARS 8 changing the definition of a compilation from “prepared or presented or materially modified” into “prepared and presented”. In 2013, the Professional Ethics Executive Committee of the AICPA declared that “preparation service”, an integral part of a compilation, was not an attest service. This caused the definition of what was a compilation to evolve into an “engaged” standard of “preparation services” and “compilation services.”