Independence Day

The BIG 4 have been the subject of increased scrutiny due to issues of consulting and other nonaudit services they sell, undermining their ability to conduct independent reviews.  It can be easy to read this news and not pay much attention.  Surly this is a large public company issue that barely relates to CPAs in Montana, right?  WRONG, really wrong in fact.  Even if you work in corporate accounting or for a firm that does no attestation work, this issue could impact you.   

Issue #1 

For better or worse, the BIG 4 drive many things about the accounting profession.  Critically for us, they drive the perception of the profession with regulators.  Perception is a scary thing because it is not the reality of the situation.  In today’s political environment this is dangerous. 

CPAs could understand that a large public company failure had nothing to do with their auditor providing some other service.  Would the US Senate have that same understanding? Or would their perception be that the audit firm caused the failure?   

If there is change made at the public company level, it will likely impact private company rules eventually.  Regulators typically focus on the large entities first, but if banks and investors get some benefit from those changes they tend to push them to smaller entities.   

Issue #2 

We face similar risk right here in Montana.  A large public company audit failure could generate change on the national and international levels.  Part of that change would be a consolidation of effort from across the profession.  AICPA would spend large amounts of money and influence to fight for the profession.  We would help in every way possible.   

What if Town Pump went out of business and their auditor* also provided them with some advisory services.  I doubt anybody at the national level would bat an eye, but I could easily see the Montana Legislature digging into the cause.  We would all face doubt about what we do.  If CPAs were the scapegoat we would all suffer and we would all need to pull together to fight for the profession.   

What do we do? 

You have probably seen the phrase 4th of July many times recently.  I would like to remind you the holiday has a name Independence Day.  When I Google Independence Day I get results for a movie!  July 4, 1776, the Second Continental Congress approved the Declaration of Independence, and our nation was born.  I hope you found some time to enjoy some BBQ and fireworks this weekend.  Now that are back to your office spend some time on your own independence.  My recommendation is to start with the AICPA’s Plain English Guide: https://us.aicpa.org/content/dam/aicpa/interestareas/professionalethics/resources/tools/downloadabledocuments/plain-english-guide.pdf  

If you work in a business, non profit, or government entity take some time to think about the firm you work with.  Do they provide other services?  It may be easier in the moment to ask your auditor to do something, but recognize the risk to independence.  At the very least it is worthy of a conversation to make sure everybody involved understands the impacts. 

The Montana Society of CPAs is here to fight for the profession. As members you each can help us do this by being pro active and making sure you are following the rules.  As members you also agree to follow the AICPA Code of Professional Conduct.  Part of that code covers independence issues.  Part of being a member is taking the time to make sure you understand and follow those rules.   

* I have no idea who does the audit of Town Pump.  They are used as an example because most of us have been to a Town Pump.  I also have no reason to think Town Pump will go out of business any time soon.  We appreciate our members both at Town Pump and their auditor.