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At-A-Glance
The Integra International Annual World Conference brings together professional accountants from six continents to share common interests arising from the diverse context of their separate homelands. Those having attended these gatherings for the more than 25-year history remark at how much more alike we are as humans and practitioners than we are different. The October 2021 conference hosted in Miami, Florida, by Integra Firm of the Year, KSDT, CPA, was no different, except for the hybrid nature of in person and remote attendance required by the pandemic. This issue of the Audit & Accounting Alert highlights some of the conference sessions.
On a personal note, the Editor is pleased to announce the publication of his new book, Celtic Journeys, A Traveler's Memoir, available on Amazon.com. Of special note, several of the stories were inspired by travels to locations where Integra International World Conferences were held, such as Cape Town, Melbourne, and Dublin.
Our Worldwide Update is again split into two sections. The first covers COVID-19 news from organizations across the globe, while the second covers other news.
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Integra International Annual World Conference Emerges from the Pandemic
Accounting, tax, consulting, and practice management highlight hybrid event
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The recent Integra International World Conference held in Miami, Florida, was a testament to how rapidly and well accountants have adopted to the “new normal” that the pandemic has created. By the time of the prior World Conference conducted remotely in October 2020, members were already well versed with the Zoom platform and other online tools required by the lockdown. This year, a large contingent convened in person at Miami Beach, while those restricted by travel logged in via Zoom. Hopefully by next year, all can gather together in London, though the hybrid approach may have a life beyond the pandemic.
Integra 2021 Firm of the Year, KSDT, CPA, hosted a highly successful event while also leading a number of the sessions. Along with diverse topics such as transfer pricing tax implications, client advisory services, investments in uncertain times, best firm management and merger practices, several sessions were of specific interest to auditors. These covered avoiding litigation risks and cybersecurity, along with one featuring an FBI agent expounding on money laundering.
Renowned industry expert on professional liability and litigation, Roy M. Hartman, Esq., attorney with Miami firm, Sacher, Zelman, Hartman, P.A. gave an in-depth analysis with his presentation titled “Avoiding Litigation Risks and Potential Professional Malpractice Claims By (A) Maintaining a Proper Client Acceptance Process and (B) Requiring ALL Clients to Execute a Client Engagement Letter.” While CPAs generally are aware of the needs in this area, the lecture was valuable not only for serving as a reminder of the importance of sound policies, but also for the input from Hartman’s decades of experience working with clients on handling these issues.
The first step in avoiding litigation is to not accept risky clients to begin with. The CPA’s constant drive to bring in new business needs to be tempered with a rigorous policy that uncovers both obvious and more subtle warning signs. Hartman listed a dozen of these, including prior illegal activity, financial problems, poor internal controls, lacking internal stability, uncertain futures, frequently changing or suing accountants, accountant shopping, substantial litigation, substantial related party activity, requiring expertise the CPA does not have, excessive hassling over fees, and generally leaving an uncomfortable feeling (the smell test).
The client acceptance process should employ a comprehensive, formal checklist, considering a variety of internal and external sources, followed by firm approval before acceptance. Rejection letters should be sent to all prospects that do not pass muster. Going forward, the process should also be applied to existing clients regularly. Where problems develop, disengagement letters need to be sent carefully laying out the reasons.
Hartman emphasized that signed engagement letters need to be obtained every year for each separate engagement and for any additional work, clearly laying out scope, conditions and responsibilities. Complete and consistent implementation of formal policies can help reduce the risk of litigation, and potentially lessen the impact if claims occur. Prompt reporting of potential issues to the insurance carrier and seeking the advice of legal counsel are among the other measures mentioned.
The cyber security session featuring industry expert, Roger Grimes from KnowBe4, Inc., was titled Social Engineering & Phishing Attacks - Best Practice Defenses. A common comment heard after his presentation was that attendees were “scared to death” about their exposure to computer hacking in their firms. Interestingly, Grimes emphasized that three common sense measures could reduce substantially the extent of bad experiences in this realm. First, make sure that all the latest patches have been installed for internet-accessible software. Hackers become quickly aware of security weaknesses that are announced for popular software programs. That knowledge gives them time to probe those weaknesses in organizations that have not yet installed the patches that correct the weakness. Second, use multi-factor authentication (MFA) and non-guessable passwords. MFA is not foolproof but is better than just single factor passwords. Third, mitigate social engineering that attempts to cause individuals to reveal confidential information. Strong policies will help, along with ongoing education, such as teaching personnel how to spot rogue URLs.
One of the final speakers was an FBI forensic accountant and CPA whose topic was Follow the Money. Though financial fraud does not have the dramatic appeal of murder and gun battles, accountants can be proud of their place in the FBI for having brought down notorious gangsters like Al Capone, not for murder or corruption, but for tax evasion. The speaker in keeping with FBI confidentiality policy did not provide reference materials, notes or slides for the audience, adding to the agency’s mystique.
Further details can be found at Most ransomware attacks rely on exploiting older, unpatched vulnerabilities and Celtic Journeys, A Traveler’s Memoir.
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Worldwide Update
Periodic roundup of recent and upcoming actions and activities by auditing and accounting organizations throughout the world.
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Other Updates
International
IASB – International Accounting Standards Board (www.ifrs.org)
- Climate-related Disclosures Prototype and General Requirements for Disclosure of Sustainability-related Financial Information Prototype, published November 3, 2021, by the Technical Readiness Working Group (TRWG). “The Climate Prototype sets out the requirements for the identification, measurement and disclosure of climate-related financial information, and the General Requirements Prototype sets out the overall requirements for disclosing sustainability-related financial information relevant to the sustainability-related risks and opportunities faced by the entity. These documents are all recommendations from the TRWG for consideration by the newly created International Sustainability Standards Board (ISSB).”
IFAC – International Federation of Accountants (www.ifac.org)
- The International Accounting Education Standards Board - Revisions to International Education Standards: #2, Initial Professional Development – Technical Competence; #3 Professional Skills; #4 Professional Values, Ethics and Attitudes; Revision to International Education Standard #8, Professional Competence For Engagement Partners Responsible For Audits Of Financial Statements, released October 21, 2021, “addressing learning and development for information and communications technologies (ICT) and professional skepticism. As market expectation increases for ICT skills and professional skepticism, these standards were developed to address the competencies, skills, and behaviors for both aspiring and professional accountants in these critical areas.”
- International Public Sector Accounting Standards Board - Amendments to IPSAS 5, Borrowing Costs – Non-Authoritative Guidance, issued November 3, 2021, “adds implementation guidance and illustrative examples to IPSAS 5. The new material illustrates how the existing principles for when borrowing costs can be capitalized should be applied in various regularly encountered public sector contexts. No amendments are proposed to the authoritative material in IPSAS 5, and the existing option to expense or capitalize borrowing costs is retained.”
ACCA – Association of Chartered Certified Accountants (www.accaglobal.com)
- Closing the expectation gap in audit: the way forward on fraud and going concern: a multi-stakeholder approach, professional insights report published October 29, 2021, “offers recommendations based on research with key players of the financial reporting ecosystem. These include financial statement preparers, auditors, regulators, boards and audit committees, and investors. The research found that factors contributing to the expectation disparity include gaps in knowledge, performance and the evolution of audit. To tackle fraud, a main recommendation is to encourage the involvement of forensic specialists in risk assessment where a high risk is identified, but auditors should still apply their professional judgement when determining how to respond to identified fraud risks. Participants noted that mandating the involvement of forensic specialists may widen the expectation gap, as this could lead to a ‘box-ticking’ approach. The report concludes that it is not necessary to have a ‘suspicious mindset’ for enhanced fraud identification when planning and performing the audit; instead, ACCA, CA ANZ, AASB and CPA Canada suggest that the IAASB and national standard setters consider areas where the auditing standards could be enhanced to guide audit practitioners in the application of professional scepticism.”
- Think Small First: Enabling effective climate action by Small and Medium-sized Businesses, report published November 4, 2021 jointly by Sage, the International Chamber of Commerce (ICC) and ACCA, calling on policymakers and large companies to “standardise and simplify carbon reporting and accounting for SMBs or risk millions of businesses being left behind.”
CIMA – Chartered Institute of Management Accountants (www.cimaglobal.com)
VRF - The Value Reporting Foundation (www.thevrf.org)
World Economic Forum – (www.weforum.org)
- Beneath the Surface: Technology-driven systemic risks and the continued need for innovation), report published October 12, 2021, in collaboration with Deloitte, “explores the relationship between increased technology adoption and the potential shock of cascading risk factors – for example, the domino effect that can result when hackers, disasters or geopolitics expose interconnected financial systems to a growing array of known and unknown vulnerabilities. The research additionally examines actions that can address identified risks, including the role that technology itself can play in mitigation approaches.”
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Africa, Europe, India, and the Middle East (AEIME)
FRC – Financial Reporting Council of the UK (www.frc.org.uk)
- Taskforce on Climate-related Financial Disclosures (TCFD): ahead of mandatory reporting - Developing practice, report published October 28, 2021, “to help companies prepare for mandatory TCFD reporting. It includes practical advice and examples that better address aspects of TCFD reporting from those companies already adopting the framework on a voluntary basis.”
ICAEW - Institute of Chartered Accountants in England and Wales (https://www.icaew.com/)
EC – European Commission (https://ec.europa.eu/)
EFRAG – European Financial Reporting Advisory Group (www.efrag.org)
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Americas, Asia, Australia and New Zealand (AAANZ)
AICPA – American Institute of Certified Public Accountants (www.aicpa.org)
- Accounting and Review Services Committee – Exposure Draft: Statement on Standards for Accounting and Review Services (SSARS) Quality Management for an Engagement Performed in Accordance With Statements on Standards for Accounting and Review Services. “The purpose of the proposed SSARS is to ensure that certain concepts related to quality management, where appropriate, are consistent between the proposed auditing standards and SSARSs. The comment period ends January 31, 2022.
FASB – Financial Accounting Standards Board (www.aicpa.org)
- Leases (Topic 842): Discount Rate for Lessees That Are Not Public Business Entities - Accounting Standards Update No. 2021-09, issued November 4, 20212. “The amendments in this Update allow those lessees to make the risk-free rate election by class of underlying asset, rather than at the entity-wide level. An entity that makes the risk-free rate election is required to disclose which asset classes it has elected to apply a risk-free rate. The amendments require that when the rate implicit in the lease is readily determinable for any individual lease, the lessee use that rate (rather than a risk free rate or an incremental borrowing rate), regardless of whether it has made the risk-free rate election.” Effective generally in 2022, with early adoption permitted.
- Exposure Draft - Interim Reporting (Topic 270) Disclosure Framework—Changes to Interim Disclosure Requirements, issued November 1, 2021, “would update FASB Accounting Standards Codification® Topic 270, Interim Reporting, which clarifies the application of accounting principles and reporting practices for entities preparing interim financial statements and notes in accordance with Generally Accepted Accounting Principles (GAAP).” The comment period ends January 31, 2022.
- Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities From Contracts With Customers - Accounting Standards Update No. 2021-08, issued October 28, 2021, “require[s] that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. To achieve this, an acquirer may assess how the acquiree applied Topic 606 to determine what to record for the acquired revenue contracts. Generally, this should result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquiree’s financial statements (if the acquiree prepared financial statements in accordance with generally accepted accounting principles [GAAP]).” Effective for public companies generally in 2023, and in 2024 for all other entities, with early adoption permitted.
- Compensation—Stock Compensation (Topic 718): Determining the Current Price of an Underlying Share for Equity-Classified Share-Based Awards – Accounting Standards Update No. 2021-07, issued October 25, 2021. “As a practical expedient, a nonpublic entity is allowed to determine the current price input of equity-classified share-based awards issued to both employees and nonemployees using the reasonable application of a reasonable valuation method. The practical expedient describes the characteristics of the reasonable application of a reasonable valuation method including (1) the date on which a valuation’s reasonableness is evaluated, (2) the factors that a reasonable valuation should consider, (3) the scope of information that a reasonable valuation should consider, and (4) the criteria that should be met for the use of a previously calculated value to be considered reasonable.” Effective generally in 2022, with early adoption permitted.
GASB – Governmental Accounting Standards Board (www.gasb.org)
- Statement 98: The Annual Comprehensive Financial Report, issued October 22, 2021, “changes the name of the most extensive report prepared following its standards to the annual comprehensive financial report or ACFR. Until now, the name applied to those reports was the comprehensive annual financial report.” Effective immediately.
COSO - The Committee of Sponsoring Organizations of the Treadway Commission (www.coso.org)
PCAOB – Public Company Accounting Oversight Board (www.pcaob.org)
- Staff Guidance – Insights for Auditors, Evaluating Relevance and Reliability of Audit Evidence Obtained From External Sources published October 7, 2021, “focuses primarily on considerations that address relevance and reliability of information from external sources that the auditor plans to use as audit evidence. It also addresses the relationship between the quality and quantity of audit evidence.”
SASB – Sustainability Accounting Standards Board (www.sasb.org)
SEC – Securities and Exchange Commission (www.sec.gov)
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Audit & Accounting Alert is a publication of Integra International intended to highlight emerging issues in the profession. The goal is to give Integra members an awareness of developments impacting the practice of Audit & Accounting enabling them to stay on the forefront of industry trends.This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors forspecific advice.
Editor Gerald E. Herter
www.Integra-International.net
© 2021 Integra International. All Rights Reserved.
If you wish to stop receiving email from us, you can simply remove yourself by visiting @@[email protected]@ .
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