A recent survey showed that a majority of couples have experienced relationship stress because of finances. So, how can couples openly communicate about money? Mike Landsberg, CPA/PFS, shares a few reminders. Also, Sara Lord, CPA, a member of the AICPA Auditing Standards Board (ASB), expands on the board’s recent exposure draft related to quality management. The comment period on the ED runs through June 11, and comments can be sent to CommentLetters@aicpa-cima.com.
What you’ll learn from this episode:
- The reasons finance discussions aren’t easy for all couples.
- Why becoming a couple does not automatically mean that assets should be combined.
- Some high-level goals for the ASB’s quality management ED.
- The timeline for commenting on the draft and the board’s schedule for evaluating the comments and potentially adjusting the standards in the ED.
Play the episode below or read the edited transcript:
To comment on this episode or to suggest an idea for another episode, contact Neil Amato, a Journal of Accountancy senior editor, at Neil.Amato@aicpa-cima.com.
Neil Amato: Welcome back the Journal of Accountancy podcast. This is Neil Amato with a look at what’s making news in the accounting profession.
In recent survey news, 73% of respondents in a January poll said financial decisions have caused tension in their relationship, with more than 1 in 4 of them saying that these tension-causing decisions happening once a month.
Mike Landsberg is a CPA, and he’s joining the podcast to talk a bit about how those of us in relationships can be better about having the money talk. Mike, welcome to the podcast.
Mike Landsberg: Thanks, Neil, great to be here. And a very germane time, given that Valentine’s Day is coming up.
Amato: Yeah, exactly. You were quoted in a recent article about that survey. It seems to me in looking back at the data and the information in that article that transparency is kind of the key, the main theme for couples when talking about money. What do you think that?
Landsberg: Transparency is incredibly important. Now, it’s not binary. It’s not a black or white area here, where you have to give everything to your partner or spouse, but you don’t want to have a situation where things bubble up later. It’s an important thing to think about when you’re getting more serious in a relationship that you don’t have these big financial surprises. So you don’t have to have complete transparency, but if there are certain things that are going to come up down the road that either have big financial burdens that the other partner might not know about or just something that you don’t feel comfortable talking about, that you feel embarrassed about, these are things that can eventually cause a lot of distress. And it’s not always going to be the happiest conversation, but remember a lot of these things, the debt that you or your partner or spouse has in a certain extent becomes your debt as well down the line if you get married or decide to start a legal relationship as well.
Amato: Yeah, so it sounds like, it’s OK for couples to have separate bank accounts, especially if they were used to having their own accounts, but they probably should make their partner, their spouse aware of what’s in those bank accounts.
Landsberg: Yeah, I think just having that open dialogue. It’s not like you have to give each other your logins to your bank accounts or anything like that. Just if there is outstanding credit card or a lot of student loan debt or issues that have come up in the past, these are just things that I think are crucial to at least disclose to your partner at a certain point. You can either work through that together. For example, if you’re carrying a lot of credit card debt, and your spouse, your partner may say, “Hey, listen, I don’t mind loaning you the money or just paying off that credit card debt because, as a financial unit, the two of us, we shouldn’t be paying 20% interest, for instance, on a credit card debt that’s outstanding when we have cash in our checking account. Or I do, at least, that I can help you with.”
So, it can bring up solutions to problems that one spouse might not have even known existed. It allows you to figure out what is out there, if there’s going to be other obligations coming down the pike, you’re going to be taking care of a family member or an aging parent or something like that, there’s nothing wrong with that. But just being forthright and honest about that with your partner is a good thing to have as well. It’s just going to foster more trust, and there might be some rough patches along the way, but moving forward, it’s only going to help galvanize the relationship.
Amato: Yeah, I can see how if suddenly you decide to apply for a loan together for a home, some surprises on some hidden debt could be a problem. The article we ran on this survey had the headline, “Why It’s Romantic to Talk About Money.” You mentioned it is closing in on Valentine’s Day. In closing, what would you say are one or two takeaways for couples to have less financial stress in their relationships?
Landsberg: I think a few of the big things are what I mentioned before. Open lines of communication and having a very comfortable discussion about this once in a while. Now it doesn’t have to be every month or every paycheck to see how you’re going to allocate your funds, but if you’re going to be sharing a life together, it goes so much further than the financial aspects of things, you wouldn’t want to keep [the other person] in the dark about personal matters or other important things. Finances are just crucial and prudent to be talked about as a financial unit.
Now, it doesn’t mean you have to consolidate and comingle your assets. I know a lot of couples that keep everything separate, as two financial entities. A lot of people like to have a joint account together, where they have, not complete, but they have a lot of insight into what the other person has. It only makes things more comfortable down the line. Now if you want to keep different accounts, then there’s obviously the ability to share expenses, have a spreadsheet or something like that, but that’s one of the big takeaways I took. And also, just being able to have a better relationship by having more honest discussions about finances. Unfortunately, finances are one of the big causes of divorce. If you get rid of that issue by having more comfort talking about finances, I think it’s only going to cause benefits in the future and get rid of some of that friction that we see from a lot of relationships unfortunately. All of us have had experiences like that, where there have been issues with money. They’re not deal-breakers obviously, but it’s something that you just want to make sure is out in the open and you can work together to get toward a solution as opposed to having these two separate financial lives and have issues in the future with trying to take out a loan or a mortgage or just anything that comes up in your financial life.
Amato: Mike, that’s good advice, some good reminders. Thank you very much for being on the podcast.
Landsberg: My pleasure, Neil. It’s a great time.
Amato: Now, we’ll shift the topic to auditing and bring in Sara Lord. Sara is a CPA who is chief auditor at RSM. She is a member and task force co-chair with the AICPA Auditing Standards Board, which recently issued an exposure draft on quality management. Hi, Sara.
Sara Lord: Hi, Neil. Thanks for having me today.
Amato: Thank you for being here. Can you briefly summarize the goals of this exposure draft as it relates to improving audit quality?
Lord: Absolutely. It has actually been almost 15 years since the last time the quality control standards were significantly enhanced. As we all know, a lot has happened in the world in the last 15 years related to the use technology and the expansion of service providers. There’s a lot of different people that are part of the audit engagements, whether it’s specialists, networks, or service centers that are being used to help execute the audit. And looking at all these changes, there’s a need to refocus on the importance of leadership over the entire execution of the audits, as well as tone at the top.
So, this exposure draft looks at all these different pieces. It also takes into account feedback that we’ve received that the existing quality control standards really are fairly one size fits all and that doesn’t always adapt for smaller firms to be able to right-size their quality control — or now, system of quality management — and to the types of engagements they execute, and to the types of clients that they serve.
Amato: Why is it important that the standards be based on the IAASB standard related to quality management?
Lord: It’s important that these standards be converged with the standards of the IAASB because quality management is foundational to what an audit firm is doing. The ASB’s strategy is to converge with the standards of the IAASB and to consider standards of the other standard setters while we’re doing that. Throughout the process of developing the IAASB standard, the ASB has provided input through the entire way, whether through formal comment letters or informal conversations that were had for every single IAASB meeting, so we really do believe we had collaborative input into the standard that was developed.
When we think about quality management, really what we’re doing is setting the foundation for an auditor, how they execute and implement the audit procedures and how they instill quality into the product that we’re delivering to the capital markets and to other users of the financial information. It would be pretty confusing if that was foundationally different, whether you were doing standards based on the ASB standards or the IAASB standards. So, it was really important that the two really start with that same foundation and then allow each firm the flexibility of tailoring it to their own specific need.
Amato: And finally, what is the timeline for the exposure draft comment period and then the next steps for the Auditing Standards Board?
Lord: The exposure draft is available now on the AICPA’s website. Comments are due by June 11. You will notice in the exposure draft that oftentimes people will send a formal letter responding to maybe everything in the exposure draft. We also made available the opportunity to send in an email response. This can be a little bit less formal type of response, and it’s also very welcome for you to respond to certain aspects of the exposure draft. Maybe there are certain questions that are most important to you. Please provide information on those because that is something that we’re going to be looking at, all the feedback received to make any adjustments that are needed to make this standard operable. Particularly if you’re reading it, and you see anything that’s confusing or that you think really won’t work well in practice, we’d love to hear the feedback on that. And even better is if you have an idea on what would fix it, what would be a better path forward for the board to deliberate.
Once we get the comments back, we will evaluate every comment that’s received. The task force will do a lot of deliberations, bring back any necessary adjustments to the board. We’ll be discussing these standards at several meetings between July and December of 2021. The expectation or the goal right now is to be able to vote a final standard in January 2022.
Amato: We’ll have more information on how you can comment in the show notes for this episode. That’s for the listeners. And for Sara, thank you very much for being on today.
Lord: Thank you, Neil.
Amato: In other news, the Senate voted to make room in the fiscal year 2021 budget resolution for mobile workforce legislation. Details of the budget still must be negotiated, but the vote creates the possibility that mobile workforce legislation, something the AICPA strongly supports, will be enacted this year. We will continue to monitor this and other stories that affect the accounting profession. Thank you for listening to the Journal of Accountancy podcast.