Private companies will likely have to spend more quality time with their auditors this year.
Quality, expensive time.
New requirements in effect for fiscal year 2007 will add extra work to each audit, meaning even once-small jobs might take much longer — and lead to higher bills for clients.
Previously, CPAs could complete audits by examining a company’s balance sheets. Now CPAs have to check internal controls, or “go below the numbers” to see if the processes that pulled the numbers together are sound. Accountants have to walk through transaction processes and, in addition, make reports on where potential weaknesses lie.
Fees Jumping
It’ll mean a bigger per-client workload, said Reed Risteen, a partner with West Hartford-based Blum Shapiro, although it’s tough to say how much more it is going to cost those clients
“Some people are saying that the new standards could add a 20 percent increase in fees this year. Other are saying 30 percent, others 10,” he said.
But it’s not just about the price tag, said Julie McNeal, technical activities adviser with the Connecticut Society of CPAs. Managers are going to have to be more involved with the audit process.
Unlike past years, financial managers can’t just hand over cash disbursements and receipts and say, “Tell me when you’re finished,” she said. “It places a lot more [work] on the client to pull their own information together and understand their own information.”
The change is the result of a 2006 decision from the American Institute of Certified Public Accountants, which sets accounting and auditing standards for private and nonprofit companies. The more rigorous procedures — called Statements on Auditing Standards 104-111 —might lead accountants to start doing their per-client work earlier this year. Because many private companies’ fiscal years end near the close of the calendar year, more accountants plan to start their work earlier in the fall.
Big Problem
Stephen Jackson, a Hartford-based partner with international accounting and consulting firm UHY, said companies with about $30 to $50 million in revenue might be in the biggest bind this year.
That type of company is too small to have either the money or the in-house audits in place to easily absorb extra regulations, but big enough to need relatively complicated controls in place. Companies below $5 million or $10 million might have simple enough operations to avoid headaches, Jackson said.
Chuck Landes, vice president of professional standards and services with the AICPA, downplayed the possibility of increased burdens on individual companies. Impacts to individual firms depend on the methodologies they already use, he said, and many companies already do risk-based auditing anyway.
Accountants locally were quick to point out connections between the new private standards and the post-Enron Sarbanes-Oxley Act, which imposed stringent new federal auditing requirements for public companies. Landes denied any correlation between the two.
“These standards have nothing to do with or any parallel to Sarbanes-Oxley,” he said – the AICPA had been considering such changes since 1999, well before the Enron scandal and subsequent reforms, he said.
Risteen of Blum Shapiro disagreed. The AICPA used to oversee public companies until Sarbanes-Oxley pulled public company oversight into a separate organization. Now the AICPA is more aggressively aligning its standards with Sarbanes-Oxley’s requirements, partly to prevent any possibility that the U.S. government will take over private companies, too.
The AICPA “is really clamping down,” Risteen said.
