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December 2006
NEWS FROM BP&S
Chris Stormer
Congratulations
to Chris Stormer, who has been named treasurer of the 2006-2007
board of directors of
EdVenture
Children’s Museum. This is Chris’ second year on the
board. Looking
for Experienced Auditors Due to continued strong growth in our audit
and accounting practice, the Firm is looking for an audit senior
with two to four years of recent, high quality audit experience.
Compensation will be commensurate with experience. If
you are interested (or know of someone who is interested), please
e-mail your resume directly to Tom Pietras at
tpietras@bpscpas.com.
TECHNICAL ISSUES
FIN
48—Accounting for Uncertain Tax Positions
For years beginning after December 15, 2006,
all GAAP-basis financial statements must account for taxes in
accordance with FASB Interpretation No. 48, Accounting for
Uncertain Tax Positions, including a required analysis of
all tax positions at the beginning of the period or, for calendar-year-end
businesses, as of January 1, 2007.
To help financial statement preparers, auditors,
and tax advisers meet this new requirement, the AICPA has developed
a Practice Guide on Accounting for Uncertain Tax Positions
Under FIN 48.
Tax positions can only be recognized in GAAP-basis
financial statements if they meet a “more-likely-than-not” threshold
of being realized if challenged by a taxing authority “with
full knowledge of the facts”. If this level of certainty is
not met, no tax benefit can be recorded. Even if this
level of certainty is met, only the amount which has a greater
than 50% chance of being sustained may be recorded in the financial
statements.
Specific financial statement disclosures are
required with respect to uncertain tax positions. The
AICPA’s 13-page practice guide includes highlights of FIN 48
and its implications for in-house accountants, auditors, and
tax advisers. It is not authoritative, but intended to assist
AICPA members in quickly understanding the requirements of FIN
48. The practice guide is available without charge to all AICPA
members from the AICPA website.
New Auditing Standard
Earlier this
year, the American Institute of CPAs issued a new auditing standard,
which we will be required to follow as part of our audits of
financial statements for the year ended December 31, 2006.
The new standard (SAS No. 112, Communicating Internal Control
Related Matters in an Audit) provides guidance to an auditor
on communicating internal control matters to the board of directors
(the management letter).
At the end
of November 2006, the AICPA issued some additional guidance
because of the many questions raised by CPA’s (including us)
as they began applying the new standard to their audits.
This standard
emphasizes that management is responsible for establishing and
maintaining internal controls and for the fair presentation
in the financial statements in conformity with U.S. generally
accepted accounting principles.
At times,
management may choose to outsource certain accounting functions
due to cost or training considerations. Such accounting functions
and service providers must be governed by the control policies
and procedures of the company. Management is as responsible
for outsourced functions performed by a service provider as
it is for your personnel.
Management
is also responsible for management decisions and functions;
for designating an individual with suitable skill, knowledge,
or experience to oversee any outsourced services and for evaluating
the adequacy and results of those services and accepting responsibility
for them.
As part of
our audits, many of you have requested us to prepare a draft
of your financial statements, including the related notes to
financial statements. Similar to prior years, management plans
to review, approve, and accept responsibility for those financial
statements prior to their issuance; however, the new standard
will require you to perform a more specific and detailed review
of the draft financial statements. The absence of your
detailed review would be considered a “material weakness” (reported
as such in the management letter) because the potential exists
that a material misstatement of the financial statements could
occur and not be prevented or detected by the company's
internal control.
In order
to provide oversight of the financial statement preparation
services at an appropriate level, management should establish
effective review policies and procedures including the performance
of the following functions:
- Reconcile general ledger
amounts to the draft financial statements utilizing grouping
schedules provided by us.
- Review all supporting
documentation and explanations for journal entries we propose
and approve the entries.
- Review the adequacy of
financial statement disclosures by completing a disclosure
checklist or reviewing and approving the completed disclosure
checklist we will provide to you.
- Review and approve schedules
and calculations supporting amounts included in the notes
to financial statements.
- Review and approve the
cash flow worksheet used in preparing the statement of cash
flows.
- Apply analytic procedures
to the draft financial statements.
- Perform other procedures
as considered necessary by management.
Additionally,
the new standard lowers the threshold for management letter
comments so that more things may be reported in the letter than
have been previously.
We will be
discussing this new standard with our clients in more detail
in the coming weeks and months.
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