Audit Deficiencies – What’s The Effect – Not Often Openly Discussed – An Elephant In The Room?

If you tune into PCAOB developments you are probably aware that the PCAOB publishes some of the results of its investigations of auditing firm audits of public companies. The PCAOB looks at auditor compliance with auditing standards, rules and regulations. Frequent areas in which significant deficiencies occur have included, for example:

  • Auditing internal control over financial reporting (ICFR)
  • Assessing and responding to risks of material misstatement
  • Auditing accounting estimates, including fair value measurements
  • In cross-border audits, deficient “referred” work — work performed by other audit firms and used by the signing audit firm

This raises a question – if an auditor improperly or insufficiently audits an important issue or area, is the audit still valid, or is it simply invalid, or does additional auditing work then need to be done after the fact? The issue is one of cause and effect. The two areas first listed above, auditing internal control over financial reporting, and assessing and responding to risks of material misstatement, both go to the core of the audit, the audit planning, and how the audit is performed. We don’t want to jump to conclusions, and I am sure that each audit and each situation must be looked at independently, but it is not hard to envision an argument that the audit might be invalid or that additional work now needs to be done after the fact to ensure that the audit is sufficient. If I’m on an audit committee – audit insufficiency and what to do about it make my job unnecessarily more difficult – in other words, I’m not happy with my auditor.

Enjoy. Dave Tate, Esq. (San Francisco)

Advertisements

Guest Post: Access to Internal Investigation Records by Shareholders | The D&O Diary

Mary Gill Courtney Quirós In many instances when allegations of wrongdoing surface at a company, the appropriate course for the company’s board will be to

Click on the following link for the article: www.dandodiary.com

Dave Tate, Esq. comment: A good discussion. Additionally, in any internal investigation, officers, directors, audit committee members and others need to keep in mind that the investigation might be ordered produced or there might be a decision to voluntarily produce the results (which most likely would also put at issue the background information). The fact that there was an investigation, if properly performed, tends to show diligence and business judgment, both of which are required by directors.

Dave Tate, Esq., San Francisco and California, business, real estate, D&O, trust/estate, elder abuse, injury, and professional liability litigation, http://directorofficernews.com and http://californiaestatetrust.com

Fraud: Is Your Nonprofit Ripe for the Picking?

Fraud has always been a concern for nonprofit organizations, and it’s not going away. A recent Association of Certified Fraud Examiners report shows the median loss is more than $100,000.

Click on the following link for the article: armaninollp.com

Dave Tate’s Comments. Internal controls and the potential for fraud are very real issues for nonprofits, their management and officers, and their boards. If you are a nonprofit board member you cannot simply assume that internal controls, the accounting function, and the external audit, review or compilation are taking care of everything. Are these issues that the board has on its agenda, and that the board discusses and evaluates? Have you requested that these issues be put on the agenda? You should.

Dave Tate, Esq. and licensed CPA (inactive) in California.

Blogs: http://directorofficernews.com and http://californiaestatetrust.com

See also Tate’s Excellent Audit Committee Guide, which you can find at http://directorofficernews.com

Tate’s Excellent Audit Committee Guide Sept. 2, 2015 Updated (139 pages)

The following link is to my Audit Committee Guide, updated September 2, 2015, to include additional internal audit materials and links, 139 pages in total. Please read and pass this material to anyone who would be interested, Tate’s Excellent Audit Committee Guide 09022015

Dave Tate, Esq. (San Francisco/California)
Blog, D&O, Audit Committee, Risk Management and Compliance: http://directorofficernews.com
Blog, Trust, Estate, Conservatorship & Elder Abuse Litigation: http://californiaestatetrust.com

Tate’s Excellent Audit Committee Guide – Completed Initial Edition – 115 Pages Plus Additional Links

Click on the link at the bottom of this post for a pdf of the completed initial edition of Tate’s Excellent Audit Committee Guide 08042015. The guide is for boards and audit committees of public companies, private companies, nonprofits, and governmental entities. This edition of the guide is 115 pages, plus links to additional resources and materials. The guide is updated regularly as new developments occur, and developments will also be posted to this blog. Please do tell other people about the guide and pass it along. Enjoy, and best to you.

Dave Tate, Esq. (San Francisco/California)
Click on the following link for the guide: Tate’s Excellent Audit Committee Guide 08042015

Tate’s Excellent Audit Committee Guide, Plus Prior 2007 CEB Audit Committee Chapter

For audit committee members and directors, I have attached three links below, the first for my 2007 audit committee chapter for the California Continuing Education of the Bar, the second for the new audit committee guide that is a work in progress but already contains substantial materials, and the third to the cover and table of contents to Accounting and Its Legal Implications.

Using my blog posts, the 2007 audit committee chapter (which is now unpublished, CEB subsequently cancelled the entire Director and Officer binder), and the new audit committee guide you should get a good feel for new developments and guidance about audit committee member functions and responsibilities.

I also ask that you tell other people about this blog and the new audit committee guide.

1. Here is a link to my 2007 audit committee chapter for the California Continuing Education of the Bar (the chapter and the entire D&O publication has been cancelled for some time), CLICK HERE

2. The following is a link to the new audit committee guide which contains substantial materials although it is a work in progress, Tate’s Excellent Audit Committee Guide (July 31, 2015 version), Tate’s Excellent Audit Committee Guide 07312015 CLICK HERE

3. Cover and Table of Contents from Accounting and Its Legal Implications – I expect to scan and post this entire material shortly – although some is outdated, it is still a good read – originally published by Business One/Irwin Publishing, CLICK HERE

Thank you. Dave Tate, Esq. (San Francisco / California).

SEC Issues Concept Release – Audit Committee Disclosures About The External Auditor

This is my third new post about new proposed audit committee duties and responsibilities relating to the evaluation and retention of the external auditor, and the audit committee’s evaluation of the external auditor’s qualifications. It looks like these changes, or some of them, will occur. And they will be game changers.

Audit committee members will have more specific required duties in these areas, and audit committees and external auditors will be even more under the spotlight. These changes would require more specific audit committee oversight of the external auditor, they will change the relationship between the audit committee and the external auditor, and they may force the external auditor to perform better audits, and to provide better services (I say “force” but in fact this also creates good opportunities for auditors who embrace the changes and want to highlight the quality and extent of their services).

Here is a link to the SEC website page, and the following link is to the SEC Concept Release: SEC Concept Release on Audit Committee Disclosures About External Auditor.  Enjoy.

Dave Tate, Esq. (San Francisco / California)