Cuando las casas de bolsa mantengan un índice de capitalización y sus componentes superiores a los requeridos de conformidad con las disposiciones aplicables y cumplan con los suplementos de capital a

The author wishes to thank Camico Insurance (camico.com) for providing the author with valuable information on claims used to write this section.

The irony is that most accountants believe that their engagement risk is the greatest in performing an audit, and least risky for compilation and write-up engagements.

Yet, nothing could be further from the truth. The courts are lined with cases against accountants who performed compilation or bookkeeping services for their clients.

Specifically:

1. In performing bookkeeping engagements, accountants are being sued by clients who have higher engagement scope expectations than those actually being performed. 2. Accountants who perform bank reconciliations are not adequately communicating the

scope and limits of their services to clients.

3. Accountants, in general, are not obtaining engagement letters in bookkeeping engagements.

4. Courts are holding accountants who perform bookkeeping services to a higher level of responsibility when there is employee embezzlement because clients misunderstand:

a. The different levels of accounting services

Example: They believe the accountant is an auditor

b. The accountant’s role in performing the service

c. Basic terminology such as “bank reconciliation”

Mitigating the risk of liability

The best way to mitigate the risk associated with performing bookkeeping services is to prepare a well-written engagement letter that outlines the specific procedures that will be performed.

a. If bank reconciliations are prepared, the engagement letter should include specific language stipulating that the accountant is not responsible for fraud/embezzlement.

Suggested language about bank reconciliations to be included in an engagement letter includes:

Insert in engagement letter:

Each month we will reconcile XYZ Company’s books and records of the following bank accounts with the bank statements for proper account balance and to identify reconciling items that may require adjustments to your books and records.

Bank of America 30304044

Bank of America 54044040

We will not be analyzing cancelled checks to determine whether signatures or payments are authorized or for any other purpose, but we will briefly scan them to confirm the amounts match those recorded by the bank on the statement. By your signature below, you acknowledge that you understand and agree that our services are limited in scope and they are not designed to detect employee embezzlement or other fraudulent activities involving your bank accounts. Should you wish us to expand our procedures to include additional work and investigations, we will arrange this with you in a separate engagement letter.

REVIEW QUESTIONS

The following questions are designed to ensure that you have a complete understanding of the information presented in the assignment. They do not need to be submitted in order to receive CPE credit. They are included as an additional tool to enhance your learning experience.

We recommend that you answer each review question and then compare your response to the suggested solution before answering the final exam questions related to this assignment.

1. Most changes required by GAAP:

a) are important to the smaller closely held businesses

b) cause little cost differences for practitioners preparing reports c) have little usefulness to smaller closely held businesses

d) are equally as significant to the smaller closely held business as large corporations

2. Which of the following is not one of the four most common GAAP departures that can simplify engagement time:

a) violate FASB No. 142 (ASC 350) by continuing to amortize goodwill and indefinite lived intangibles

b) eliminate the Statement of Cash Flows

c) use income tax depreciation instead of GAAP depreciation

d) violate FASB No. 109 (ASC 740) by not recording deferred income taxes

3. Per the author, how many GAAP departures can you generally include in a compilation or review engagement without an additional emphasis of a matter paragraph:

a) none; you cannot have GAAP departures and issue a report without modification b) one or two departures

c) up to five departures d) limitless

4. According to SSARS No. 15, which of the following is true:

a) all companies can issue income tax basis accrual financial statements

b) an entity must use the basis of accounting that it uses to prepare its tax return c) authorizes companies that file their income tax return on a cash basis to prepare

income tax basis financial statements on an accrual basis

5. Which of the following is not true regarding a CPA’s use of the Internet: a) CPAs can access a variety of global business information

b) most information the CPA may want to access for compilation and review work is free of charge

c) there is a very limited amount of information available to the CPA on the Internet d) to be effective, CPAs should learn effective uses of search engines to bypass the

mass of useless information available on the Internet

6. Which of the following provisions should be in every engagement letter: a) limit on amount of damages in litigation and time to sue

b) responsibility for fraud and internal control including communication of fraud and illegal acts

c) record retention policy

d) ownership of records and confidentiality of information

7. Which of the following should be included in an engagement letter:

a) mediation clause

b) arbitration clause

c) both a and b above d) none of the above

8. Which of the following is true regarding engagement risk:

a) audits contain much greater risk than either compilations or bookkeeping services

b) clients cannot sue accountants who only perform bookkeeping services

c) courts are holding accountants who perform bookkeeping services to a higher level of responsibility when there is employee embezzlement

d) accountants are required to obtain an engagement letter in bookkeeping engagements

SOLUTIONS AND SUGGESTED RESPONSES

1. A: Incorrect. Generally, the GAAP changes are not useful for smaller closely held businesses.

B: Incorrect. Implementing GAAP changes can be costly for the practitioner of smaller closely held businesses, with little or no added value.