ASB Okays Direct Attestation
The latest SSAE, virtually unaltered from its exposure stage, changes the way CPAs can provide assurance on their clients information. Until now, CPAs could report only on managements assertion, for example, that a company maintained effective internal control; but, with SSAE no. 9, Amendments to SSAEs Nos. 1, 2, and 3, they can directly report that the company maintained effective internal control. (See Revamped SSAEs, JofA, July98.) However, AICPA technical manager Jane Mancino emphasized that management would still have to issue assertions and CPAs would still be able to report on these as in the past.
Attestation standards have been around for a decade, during which attestation engagements have become increasingly popular. SSAE no. 9 is part of a series of projects intended to increase the understandability and flexibility of the attestation standards in a changing business environment. For example, the drafters of the first SSAEs could not have conceived of WebTrust engagementswhich are performed under SSAEsat a time when the Internet was an obscure tool for a handful of computer experts.
The new statement amends, but does not replace, SSAE no. 1, Attestation Standards; SSAE no. 2, Reporting on an Entitys Internal Control Over Financial Reporting; and SSAE no. 3, Compliance Attestation.
Corporations may get to know their auditors betterafter all, theyll be seeing them every 90 days instead of just once a year, according to new firm policies. The Big 5 have agreed to perform financial statement audits only for companies that allow them to review financial statements every quarter. Because these firms audit most of the corporations listed on the New York Stock Exchange, American Stock Exchange and Nasdaq, this policy will affect many companies.
The Journal of Accountancy spoke about this new development with Dan M. Guy, who in his 18 years at the AICPA was at the center of auditing standards setting (see Former AICPA Vice-President Honored, below). This is a very, very smart move, he said. Ive been talking to members of corporate boards about this for years. I personally wouldnt serve on any board, especially its audit committee, unless the company agreed to timely reviews of quarterly statements. Guy said quarterly reviews could help detect and prevent fraudulent financial reporting and reduce end-of-year surprises that come with big fourth-quarter adjustments.
Some companies may be concerned about the cost, said Guy, who acknowledged that there would be additional fees. But the big public benefit that comes with quarterly reviews far exceeds that cost.
What about the others?
A Big 5 agreement is not a SAS; other firms are free to do what they please. Several smaller firms that audit public companies declined to talk with the Journal about their audit policies at this time. However, the magazine did speak with Thomas N. Tone, CPA, who performs annual reviews and quarterly compilations for privately held companies. He commented generally on the value of a quarterly look at a clients books, whether a CPA is performing compilation, review or audit. Many of our clients have lines of credit approaching $10 million, some of which is unsecured or secured only by receivables. Their banks want to know we have seen whats going on each quarter.
Former AICPA Vice-President Honored
In the past, the Public Oversight Board has given its John J. McCloy Award to CPAs who were authorities on auditing standards. This year, the board gave it to a man who played a prominent role in creating many of those standards. Dan M. Guy, CPA, PhD, (center, with his wife, Teri, and POB Chairman A. A. Sommer, Jr.) joined the AICPA as director of auditing research in 1979, becoming vice-president of auditing in 1983. During the next 14 years, he oversaw the issuance of more than 40 statements on auditing standards, three statements on standards for accounting and review services and all the statements on standards for attestation engagements.
In addition to shepherding through the approval process so much of the official guidance CPAs rely on, Guy has published several books and more than 50 articles interpreting that guidance. Although he retired from the Institute in 1997, Guy still remains on top of auditing issues (see his comments on new audit policies in Big Five Show No Quarter, above).
The POB monitors activities of the AICPAs SEC practice section. The McCloy award, established in 1988, honors those who have made outstanding contributions to the auditing profession.