Braddon Group

Personal finances are like fingerprints, everyone is unique. With the AICPA’s Personal Financial Satisfaction Index (PFSi) at an all-time high, you may be wondering what it means for you.

Let’s start with some background. The PFSi is a quarterly economic indicator that measures the financial standing of the average American. It’s calculated as the difference between two sub-indexes: The Personal Financial Pleasure Index, which measures the growth of assets and opportunities, and the Personal Financial Pain Index, which calculates the loss of assets and opportunities. Most recently, the Pleasure Index (68.1) greatly outweighed the Pain Index (42.1), bringing the PFSi to a positive reading of 25.9, the highest reading since 1994.

I recently sat down with Michael Eisenberg, CPA/PFS and member of the AICPA’s National CPA Financial Literacy Commission, to discuss what the record-setting quarter means for Americans.

Jonathan Lynch: What do you think about the PFSi reaching this record high?

Michael Eisenberg: It’s great for Americans. The stock market is in its second longest bull market in history, overall job openings are setting records and inflation remains favorably low. While we can all benefit from the current environment, we need to remember that the economy is cyclical, so what goes up is going to come down. Don’t let current satisfaction steer you away from long-term goals. Staying aware and positioning your financial plan appropriately can help safeguard your finances for when the economy is less prosperous.

JL: What financial opportunities and decisions should Americans consider?

ME: This is a perfect time to analyze your cash flow. Calculate how much money you’re bringing in after taxes and how much you have left after covering your monthly bills. If you have extra cash, consider increasing your savings. This may be a good time to build up that emergency fund. If your financial situation allows it, put some money aside to treat yourself, too. Whatever you do, keep in mind how your decision impacts your financial plan.

JL: What’s your advice for people who are still feeling the effects of the 2008 recession?

ME: It’s important to not let your current financial situation get you down. Start small. If you pay all your bills, be proud. If you’re taking steps to fund your retirement, give yourself a pat on the back. Think logically and reasonably – don’t dwell on something that you have little or no control over. Instead, choose to focus on what you can control and create a plan that puts you on the path towards your goals.

JL: What do you think will happen in the months ahead?

ME: It’s tough to predict the future. Based on previous trends, it’s likely that the regions affected by the recent hurricanes, floods and wildfires will see a negative impact on the housing market and a significant increase in loan delinquencies. Those who weren’t affected should take this opportunity to prepare in case they ever face a similar situation. The AICPA’s Disaster and Financial Planning: A Guide for Preparedness and Recovery is a great resource. Remember, if you’re having trouble navigating your financial situation, consider meeting with a CPA financial planner.

Jon Lynch, Manager, Public Relations, Association of International Certified Professional Accoutants

 

     

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Deck the halls with boughs of holly, fa la la –

Hold up! Before you whip out the eggnog, don’t forget there’s another holiday between Halloween and Christmas. You know the one, where stretchy pants are part of the dress code so you can devour ALL the stuffing and cranberry sauce.

While a dinner in your hometown is sometimes the preferred way to spend Thanksgiving, the financial impact can be daunting. On average in the United States, more than $2.9 million dollars is spent on Thanksgiving dinner food, and the average household spending clocks in at around $342 for the weekend. This is why many Americans are opting for a “Friendsgiving” instead, celebrating Thanksgiving locally with friends. It’s a popular way of saving time, travel and, most of all, money.

Here are some tips for hosting a fun and frugal Friendsgiving:

• DIY decorations: Pinterest is always your friend when it comes to holiday gatherings, especially when trying to save money. Instead of spending a ton on decorations you’ll only use once, head to your local dollar store and see what you can pick up to create a festive ambiance for your pals.

• Potluck it up: There’s no reason to take on all the cooking yourself, and a potluck is a fun way to test out different recipes. Create a Facebook event for your Friendsgiving, and ask everyone to post what they’re bringing – that way there aren’t any duplicates (although, you can never have too many mashed potatoes, am I right?).

• BYOB: This is an obvious one, but beverages can really add up – not to mention it’s hard to please everyone’s taste buds! Be clear that everyone should bring their favorite beverage and, for a fun twist, have them bring their own glasses as well! Then your table will be a fun display of your guests’ individuality.

• Tap your friends for furniture: You’re probably thinking, “Where is everyone going to sit?!” This is where, yet again, your friends come in – someone is bound to have a folding table stored away in their garage. All you have to do is ask. Even if it’s a tight squeeze in an apartment, fun will still be had by all!

The holidays can be a stressful time (just ask Monica, who ended up with a turkey stuck on her head in that episode of “Friends”). And it’s typically expensive. So why not test out something new to make it easier on everyone?

What are your favorite ways to save around the holidays?

Samantha Delgado – Manager – Communications, PR & Corporate Responsibility, Association of International Certified Professional Accountants

     

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Cash, accrual, modified cash or tax—which basis of accounting is best for your not-for-profit? It’s an important decision, so you should consider your options carefully. Management, stakeholders, board members, current and potential grantors, donors and creditors all rely on your financial statements to gain an understanding of your organization’s financial health.

Not-for-profit organizations have several options when choosing a basis of accounting. Here are brief descriptions of your choices:

• Cash Basis – Cash basis financial statements present the activity of the organization based solely on cash receipts and disbursements.
• Accrual Basis – The accrual method of accounting, more commonly referred to as generally accepted accounting principles (GAAP), reports revenues in the period earned and expenses in the period incurred.
• Modified Cash Basis – Modified cash basis statements combine elements of cash basis and accrual accounting. Certain transactions are reported on an accrual basis and others on a cash basis (for example, liabilities may be presented, but fixed assets may not).
• Tax Basis – Uncommon among not-for-profit organizations, the tax method of accounting would ensure the financial statements match the organization’s Form 990.

How do you decide which basis of accounting is best? Some factors to consider when making this choice include:

• Simplicity. The cash method may be the easiest to maintain and understand. Either the money came in or it went out. There are no accruals or allocations to compute. Cash basis financial statements are most common with very small not-for-profits.
• Savings. Cash basis financial statements may provide administrative savings. With no accruals or allocations to consider, less time is required for accounting. In addition, if the organization has a financial statement audit, there are fewer statements for an auditor to test and issue an opinion on. This would generally reduce the cost of an audit.
• Regulatory Requirements. Do you have to use a particular basis of accounting? For example, in Minnesota, the Attorney General’s office requires not-for-profits with more than $750,000 in revenue to have audited financial statements under GAAP. The IRS also addresses accounting method in its Form 990 Instructions, so be sure to consider the tax compliance implications of your choice.
• Organizational Documents. Like regulatory requirements, a not-for-profit’s by-laws may specify the basis of accounting the organization must use. Consider reviewing your organization’s by-laws before undergoing extensive research to make sure you have the flexibility to choose a basis of accounting.
• Understanding of Financial Position. Financial statements prepared under GAAP typically give readers a better understanding of the financial position of the organization at year-end. GAAP-based financial statements will show payables and other outstanding obligations, as well as any committed receivables or pledges. Cash basis statements often provide limited information. For instance, a not-for-profit that receives donated supplies and materials used in its programs would not capture their value or impact to the organization using cash basis statements.
• Established Framework. Financial statements prepared using GAAP are based on a familiar framework. Since GAAP is commonly used, it also allows for financial statement comparability. Modified cash basis financials can be presented in any format management chooses, so they may not be comparable with the statements of other organizations.

If audited GAAP financial statements are required and an organization prefers cash basis, they can make any necessary adjustments when closing the books. Likewise, an organization may find it less confusing to have their audited financial statements match their internal financial statements. Whatever basis of accounting you choose, make sure the option you select provides useful information to all stakeholders.

For more information, tools and resources to help you with the unique aspects of not-for-profit accounting, check out the AICPA Not-for-Profit Section.

Marc Kotsonas, CPA, Officer- Mahoney Ulbrich Christiansen Russ. Marc specializes in audit services for not-for-profit organizations. He is a member of the AICPA Not-for-Profit Section and has completed the Not-for-Profit Certificate II training program.

     

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Cash, accrual, modified cash or tax—which basis of accounting is best for your not-for-profit? It’s an important decision, so you should consider your options carefully. Management, stakeholders, board members, current and potential grantors, donors and creditors all rely on your financial statements to gain an understanding of your organization’s financial health.

Not-for-profit organizations have several options when choosing a basis of accounting. Here are brief descriptions of your choices:

• Cash Basis – Cash basis financial statements present the activity of the organization based solely on cash receipts and disbursements.
• Accrual Basis – The accrual method of accounting, more commonly referred to as generally accepted accounting principles (GAAP), reports revenues in the period earned and expenses in the period incurred.
• Modified Cash Basis – Modified cash basis statements combine elements of cash basis and accrual accounting. Certain transactions are reported on an accrual basis and others on a cash basis (for example, liabilities may be presented, but fixed assets may not).
• Tax Basis – Uncommon among not-for-profit organizations, the tax method of accounting would ensure the financial statements match the organization’s Form 990.

How do you decide which basis of accounting is best? Some factors to consider when making this choice include:

• The cash method may be the easiest to maintain and understand. Either the money came in or it went out. There are no accruals or allocations to compute. Cash basis financial statements are most common with very small not-for-profits.

• Cash basis financial statements may provide administrative savings. With no accruals or allocations to consider, less time is required for accounting. In addition, if the organization has a financial statement audit, there are fewer statements for an auditor to test and issue an opinion on. This would generally reduce the cost of an audit.

 

• Regulatory Requirements. Do you have to use a particular basis of accounting? For example, in Minnesota, the Attorney General’s office requires not-for-profits with more than $750,000 in revenue to have audited financial statements under GAAP. The IRS also addresses accounting method in its Form 990 Instructions, so be sure to consider the tax compliance implications of your choice.

 

• Organizational Documents. Like regulatory requirements, a not-for-profit’s by-laws may specify the basis of accounting the organization must use. Consider reviewing your organization’s by-laws before undergoing extensive research to make sure you have the flexibility to choose a basis of accounting.

• Understanding of Financial Position. Financial statements prepared under GAAP typically give readers a better understanding of the financial position of the organization at year-end. GAAP-based financial statements will show payables and other outstanding obligations, as well as any committed receivables or pledges. Cash basis statements often provide limited information. For instance, a not-for-profit that receives donated supplies and materials used in its programs would not capture their value or impact to the organization using cash basis statements.

• Established Framework. Financial statements prepared using GAAP are based on a familiar framework. Since GAAP is commonly used, it also allows for financial statement comparability. Modified cash basis financials can be presented in any format management chooses, so they may not be comparable with the statements of other organizations.

If audited GAAP financial statements are required and an organization prefers cash basis, they can make any necessary adjustments when closing the books. Likewise, an organization may find it less confusing to have their audited financial statements match their internal financial statements. Whatever basis of accounting you choose, make sure the option you select provides useful information to all stakeholders.

For more information, tools and resources to help you with the unique aspects of not-for-profit accounting, check out the AICPA Not-for-Profit Section.

Marc Kotsonas, CPA, Officer- Mahoney Ulbrich Christiansen Russ. Marc specializes in audit services for not-for-profit organizations. He is a member of the AICPA Not-for-Profit Section and has completed the Not-for-Profit Certificate II training program.

     

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If you’re a finance professional or run a business, you may have a new responsibility these days: cybersecurity oversight. The Association of International Certified Professional Accountants (the Association) recently conducted a survey of financial executives. Seventy-three percent of respondents said their teams are taking on more responsibility for mitigating cybersecurity risks. An additional 15% said they have become the person primarily responsible for cybersecurity.

Cybersecurity threats are pervasive and every employee needs to be vigilant. Eighty-five percent of respondents said their organizations have increased employee awareness and accountability regarding prevention of phishing or other attacks. Boards of directors and audit committees also want to learn about cybersecurity efforts. More than 44% of respondents said their stakeholders have expressed an interested in knowing more about the programs companies have in place.

This infographic demonstrates what finance professionals and business owners are saying about the state of cybersecurity within their organizations. 

And, here are two other ways to learn more:

• On Nov. 1 at noon ET, join this free, one-hour webcast featuring Shark Tank star and global cybersecurity expert, Robert Herjavec. He and Association CEO Barry Melancon will discuss the latest best practices and trends for managing cybersecurity risk.
• Boost your organization’s cybersecurity efforts. Check out the American Institute of CPAs’ cybersecurity risk management reporting framework.

     

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Do you hit your daily step count just walking around the office looking for a quiet place to call a client? Or do you move files off the chair by your desk so you can talk with a co-worker? There are benefits to working in a small office space, like the camaraderie our office developed eating lunch in the combination kitchen/library/conference room, and any challenges can be offset with some adjustments. Here are some ideas for getting the most out of your limited office space.

1. Ask before you act:

Is your office a good place for valuable impromptu meetings? Does your staff feel it’s easy to concentrate? Does the lighting throughout your office allow for a good work experience? Is technology easily accessible? The best way to find out is by asking, either in an informal meeting or via a survey. Your plans to get the best use of limited office space won’t work if you don’t solve the problems that prevent staff from doing their best.

2. Consider processes and workflow:

No matter how much space you have, you’ll get more out of it if used efficiently. Whether your employees are working collaboratively or moving throughout the office to get approvals, things will run more smoothly—and ultimately more productively—if the space is designed around your workflow. For example, based on their daily tasks, would your team be most efficient if they worked with sets of two or four desks facing each other, in a row of desks next to each other or in a central bullpen? Are the people, files and technology they need easily accessible, or do they require a trip to the other side of the office several times a day? By reviewing your staff’s activity around the office, you can streamline processes and create a better experience for all.

3. Learn to let go of paper:

File cabinets crowding the break room. Piles of paper taking up precious desk and floor space. These can be problems of the past if the firm shifts as much as possible to a paperless environment. Cloud technology solutions, including easily available options such as Box or Evernote, as well as scanning can solve the problem by containing physical documents while keeping the information accessible. If you still need some papers within reach, implement a secure system that requires files to be returned to cabinets quickly and accurately. Can’t get rid of stacks of paper on your desk no matter how hard you try? Apply the “touch it once” principle, and resolve to address (and file or discard) papers the first time you see them, rather than adding them to the mountain on your desk. 

4. Embrace hoteling:

Firm members need workspaces, but they don’t have to be permanent ones – especially if they are seasonal, part-time or regularly work remotely. In a hoteling setup like we use in our office, team members sign up for open cubicles or offices on an as-needed basis. The firm won’t have to cram less frequently used work areas into a small space or increase spending on expensive office space. A simple step to make hoteling work is to ensure there’s a display showing who’s sitting where each day.  

5. Stress mobility:

If you don’t need a big conference room for team meetings very often, consider pulling out a folding table and chairs for these gatherings instead of setting aside space that will be unused most of the time. Consider mobile workstations to accommodate seasonal or part-time staff. They can easily be stored or used to reconfigure space if workflow changes after busy season. Computer monitors on adjustable arms can be moved aside to give you greater desk space when you need it. And if your office walls are crowding you in, move meetings to an outdoor location or an indoor open space.

Want to learn more about opportunities to make your small firm more productive and profitable? The AICPA offers a wealth of resources to help you help your firm make a big impact. 

Lisa Simpson, Associate Director – Firm Services, Association of International Certified Professional Accountants.

Small office space courtesy of Shutterstock.

     

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Survey says, gaps in not-for-profit board performance fundamentally impact the success of the organization. Problems range from lack of true engagement by board members to their failure to fulfill important fiduciary duties. Do these sound familiar?  Don’t worry. We are here to help you resolve these issues and set your board up to be as efficient as ever.

To avoid these shortcomings, consider the following best practices:

• Set clear expectations up front. Do your incoming board members have a thorough understanding of what is expected of them? And do they understand what meeting those expectations will involve? Have they met key players and learned about relevant policies and procedures? We recommend developing a comprehensive onboarding process that clearly defines board responsibilities, including the details they need to know to hit the ground running.

Mandate committee participation. Committees are where the work is done, so it is a good idea to get all members involved at this level. Let them indicate their preferences based on their interests and experience to optimize engagement and effectiveness.

Select a chair capable of setting the tone and holding members accountable for meeting expectations. Dealing with volunteer board members who are often also top donors is a delicate balance. Many may have strong qualifications and will be donating significant time and resources. But remember, the chair role requires strong people management skills and a deep business acumen to provide leadership for the organization. The chair will need to maintain strong, productive relationships with management and fellow board members while being able to deliver tough messages and motivate others to bring their best to the organization.

Commit to having board members with diverse backgrounds and experiences. We recommend identifying key skills to pursue when recruiting board members (e.g., legal, financial, human resources, marketing, fundraising and community connections) to ensure all needs are covered. Beyond skill diversity, different backgrounds and experiences will bring wider-ranging perspectives to the table and set the stage for greater success.

Set term limits. Having new faces and fresh perspectives are key to your board’s success. New members help shake things up. Still want to keep former board members engaged? It is a bonus if you can tap into their vast knowledge and let’s face it, their financial contributions. Why not form a legacy committee that provides special recognition to past board members while maintaining their ties to the organization?

There’s a lot to consider—and a lot is at stake. How do you choose which of the above best practices to focus on? First ask yourself whether you are getting the best use of your board members. If the answer is “no,” then consider where things went wrong to determine your next step. Here are some examples of “what went wrong” scenarios and potential solutions:

• The board isn’t as effective as it could be. Take a look at your onboarding process. Were clear expectations set from the start? If not, focus on developing a comprehensive onboarding process that clearly establishes expectations for board members, including preparation for meetings, active participation in decision-making, and any fundraising goals. Consider providing new board-member training that includes an organizational overview, board responsibilities and structure, and information on how the board and committee meetings work.
• Members start off strong but then lose interest or focus. Consider whether the chair is setting the right tone, implement annual board performance reviews, and solicit input from board members on whether they are getting the information and support they need to stay engaged. It might also be time to conduct interviews with members to review the expectations set in the onboarding process.

In the end, board members are volunteering their time and want to make a positive impact on the organizations they serve. You want to make sure they have the tools and training they need to put their best efforts forward.

If you’d like to learn more about how to improve your board orientation process, you may be interested in the November 8^thwebcast hosted by the AICPA’s Not-for-Profit Section. The Section provides tools and resources covering not-for-profit board structure, responsibilities, orientation, and more.

Katie Thornton, CPA, Technical Resource Leader for Higher Education, Plante Moran.

Katie has over 16 years of experience serving not-for-profit and higher education clients. Currently, Katie is working with other technical leaders to prepare a comment letter to FASB related to the draft standard on contributions, which will impact government grants as well as developing tools for implementation of new standards. Katie currently serves several large private foundations, public universities and related foundations.

Kris Ray, CPA, Technical Resource Leader for Not-for-Profit, Plante Moran.

Kris has 15 years of experience in audit and consulting projects with not-for-profit organizations. Kris is the industry technical leader for Plante Moran’s not-for-profit consulting and auditing group. In this role, Kris has responsibility for quality control and implementation of new standards, leads the firm’s not-for-profit professional standards team, and performs engagement quality reviews of financial statements and consulting reports for compliance with professional standards.

Board of directors courtesy of Shutterstock.

     

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We’ve all heard the phrase, “Your health is your wealth.” Why then are so many advisers hesitant to talk to their clients about it? Health intersects the planning you provide in many ways, yet practitioners rarely go there. The result is missed opportunities and incomplete planning.

A client of mine suffered a major heart attack and stroke at age 65. In the aftermath, he and his wife resolved to spend his remaining years traveling and gifting the wealth they had amassed. On the surface, their reaction sounded like a generous, intentional plan. Unfortunately, they hadn’t considered that his life expectancy was quite a bit longer than they assumed, even after the scare. In that time, the term insurance he was certain would cover his wife’s living expenses after he was gone would expire.

He was initially adamant that he would be gone by 72. After taking him through a longevity projection that estimated average life expectancy would be age 84, we worked together on a plan that wouldn’t deny him the experiences he was eager to enjoy, but also balanced safety for him and his wife in the future. He’s now 76 and has a good chance of making it to the age we originally estimated, and is grateful we didn’t let them give their money away.

Unfortunately, I can also cite circumstances where curve balls in a client’s health resulted in a different outcome, but it’s no less important to have these conversations. Here are a few steps to get you started:

Initiate a conversation about health.

In my years of practice as a planner and physician, I’ve learned that if I can comfortably communicate with empathy and kindness why my understanding of a client’s health history is valuable to the planning process, they will buy in and appreciate the conversation.

The way I most often open up this conversation is simply to ask, “What do you do to take care of your health?” If a client is hesitant or uncomfortable, I’ve observed that by being vulnerable about my own health challenges, they more readily understand that there is no judgment and are willing to share. The client’s answer will provide insight into their lifestyle and can lead to more pointed questions.

While you should be cautious not to profile your clients, if you notice something obvious like a weight issue or smoker’s cough that they don’t offer up in their response, you can gently probe deeper.

Understand the planning implications of a client’s health status and longevity.

In our initial conversation, I explain how important it is to know about the client’s health because it affects their longevity; so much planning hinges on this projection.

Take tax planning, for example. A married client with assets at a loss who has been diagnosed with a serious llness should transfer those assets to a spouse so the losses don’t disappear at death. Or, in a scenario where a client has significant, deductible unreimbursed medical expenses, the spouse or other family members might consider undertaking medically necessary treatment to take advantage of the deductibility of those expenses in the current tax year.

If we are discussing insurance planning, understanding my client’s health status gives me valuable information when advocating for them to get the best life, long term care and disability insurance. Each insurance company treats medical issues differently, and my understanding of their health can improve my client’s insurability. The planning implications of a client’s health status are extensive – impacting not only tax and insurance planning but cash flow planning, estate planning, long term care discussions, and much more.

If a client is in perfect health, lives a healthy lifestyle, exercises regularly and eats a balanced diet, I use age 100 in my longevity calculations. If a client has significant health or lifestyle issues, I refer them to a longevity calculator, such as livingto100.com, which asks extensive questions relating to their health and family history. An added benefit is that clients are often spurred to make lifestyle changes as a result of this exercise and the feedback they receive.

Walk clients through transitions of health and aging.

After you’ve discussed your client’s health, you can create a triage list to prioritize their planning needs. In addition to their general financial planning needs (tax, estate, retirement, risk management and investment planning), this will most commonly include planning for the four major transitions of aging – housing, driving, financial and healthcare decision-making transitions. The key in all of these transitions is to avoid reactive decision making, which is more costly and diminishes the client’s quality of life as they age or face major health issues.

For example, a very healthy 50-year-old needs to plan for the possibility of living a very long time, which increases the chance of dementia. If they want to age in place, we discuss the cost and difficulties of this option if dementia occurs and have the client document their willingness to move to a facility. On the other hand, someone with multiple chronic illnesses needs to focus more on optimizing quality of life in the time they have left.

As you begin engaging in these conversations with your clients, you will undoubtedly recognize the intersection of physical and financial wellness and the value you bring to the table when you are willing to understand clients holistically. If you need more guidance in this area, the AICPA Personal Financial Planning Section can help. Take a look at the Elder Resources Page filled with podcasts, videos, articles and much more to help you talk with and plan for clients who are aging. 

Carolyn McClanahan, M.D., began her career as a physician. Recognizing the similarities between medicine and financial planning as she and her husband sought answers to fundamental questions, and feeling empowered by helping people plan for their future, Dr. McClanahan decided to make a career change. In 2004, she founded Life Planning Partners, Inc. in Jacksonville, Florida to provide the type of personalized financial life planning services she and her husband originally desired. She is a frequent speaker and commentator on the interplay between health and financial issues.

Health courtesy of Shutterstock.

     

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Let’s face it. Artificial intelligence (AI) is going to revolutionize our business environment and the profession. Advancements in AI mean that you will soon spend less time conducting time-consuming and repetitive tasks. However, just because a robot can perform certain tasks traditionally performed by a CPA, does not mean that a robot is going to steal your job. That is because humans possess traits vital to our work that robots just don’t have the bandwidth to handle. One of the most essential traits is professional skepticism.

According to the AICPA Professional Standards, professional skepticism is an attitude that includes a questioning mind, being alert to conditions that may indicate possible misstatement due to fraud or error and a critical assessment of audit evidence. It is a necessary trait that all auditors must have, and is expected of all CPAs. Here are six tips to help you enhance your professional skepticism.

1. Take the time to build rapport with your clients. Given time constraints, this may be a challenge, but gaining your clients’ trust is key, and it doesn’t happen overnight. This is especially important because you will be asking them probing questions that may seem intrusive if you do not develop a relationship first.
2. Even though you have audited this client before, you still have to act with professional skepticism now. You never know, conditions may have changed from year-to-year. I was once given the advice to approach every audit as if it was a new client that I didn’t know or trust.
3. Make sure you have enough evidence to support your conclusion. As auditors, we need to consider internal and external factors that might support or challenge our findings. It’s often easy to stop once we’ve seen evidence that supports client’s explanations. But it’s our job to ensure we’ve looked at and evaluated all available evidence, whether it supports our understanding or not.
4. Separate your relationship with the client from the job that you have to get done. Remaining objective is key. Even if your client is a friend, you need to take off your friendship hat and put on your auditor hat.
5. Make sure to leave enough time. Sometimes deadline pressures can inhibit appropriate professional skepticism. Prevent this from happening to you by planning ahead and building time into your schedule for the unexpected.
6. Maintain focus from start to finish. If you see something that strikes you as unusual, look into it, even if you find it as you are wrapping up the audit. Let’s say it’s your last day of fieldwork and you spot a variance that’s just over your threshold for an individually significant item. Stay diligent and investigate further – what seems like a minor issue may indicate something bigger.

As auditors, we are required to act with professional skepticism. Stakeholders rely on our audit reports because they trust that we enter each engagement with a questioning mind, are alert to conditions that may indicate possible misstatement due to fraud or error and provide a critical assessment of the audit evidence. The complexity of transactions in today’s business environment requires auditors to use increased levels professional judgment while performing audit engagements. So sharpen your skills with these resources:

• The whitepaper, Enhancing Auditor Professional Skepticism, discusses why professional skepticism is important, how it should be applied and shares recommendations for enhancing it.
• The Center for Audit Quality’s (CAQ) Professional Judgement Resource is a valuable tool that provides an example of a decision-making process.
• An upcoming webcast, Applying Professional Skepticism in an Audit, taking place on November 28 at 9 a.m. ET.

When you are performing your next audit engagement, make sure to ask yourself, “Am I acting with professional skepticism?”

Ahava Goldman, Associate Director- Audit and Attest Standards, Association of International Certified Professional Accountants

Robot courtesy of Shutterstock

     

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Cybersecurity attacks are inevitable. That’s the unfortunate reality. In fact, in a special report, Cybersecurity Ventures projects cybercrime’s global cost will reach $6 trillion by 2021. Now more than ever, organizations and accounting firms of all sizes need to be vigilant about protecting data and responding to threats.

What’s your liability?

That’s a big question we hear from firms regardless of whether or not they’ve been attacked. There are actually no uniform federal laws on business cybersecurity. But there is a patchwork of state rules. Under certain state laws, CPAs can face liability for cybersecurity breaches that expose personal information. Most states have rules for handling breach notifications and for what remediation measures need to be taken. Breach requirements depend on where the client resides – not where your firm is located. We encourage you to learn the dynamic requirements of states that apply to you.

Meanwhile, federal circuit courts are split as to what constitutes sufficient standing to sue in cyber breach cases. Some courts hold that companies may be liable for damages if client or employee data is stolen, even if the theft causes no harm; instead, it’s sufficient to merely allege that the information was compromised. This broad interpretation will only further increase the risk of cyber liability claims.

Take preventative action now

If someone sues your firm because of a data breach, you may have a stronger case if you can show that you’ve taken reasonable measures to help prevent an attack or theft. Setting up systems to assist in prevention is an important aspect of managing cybersecurity risk.  Here are three tips to get you started.

• Start with an assessment. What are your cybercrime defenses? Do you have gaps in your data security procedures? Do you have controls in place? How do you document incidents when they happen? What is your response plan when incidents occur?

Mapping where you stand today and where your vulnerabilities might be is the best way to understand your next steps. The AICPA’s cybersecurity risk management reporting framework helps you assess existing risk management programs. The Private Companies Practice Section cybersecurity toolkit can also help you understand the most common cybersecurity threats.

• Implement best practices. At a minimum:
• Use encryption wherever appropriate to protect sensitive data. This includes laptops, desktops and mobile devices. Failing to do so threatens your data and your reputation.
• Train employees to recognize threats and safeguard equipment and data.
• Develop and practice your response plan for various situations such as a ransomware attack, hack or ID theft.
• Back up your data so you’ll still have access to it if it’s lost or stolen.
• Keep your equipment physically secure in your office and on the road.

Once again, the AICPA’s cybersecurity risk management reporting framework helps you consider the key elements of an agile, proactive approach to threats.

• Get an outsider’s perspective. What better way to learn your firm’s vulnerabilities than to hire an expert for penetration testing? Through a penetration test, a third-party consultant will perform a test tailored to your firm’s needs and budget. They’ll provide insights on your firm’s vulnerabilities and educate you about solutions for protecting your practice. A consultant can also help you implement regular drills that test your firm’s response in the case of various attack scenarios.

Learn more

These are just a few steps to get you started in protecting private data — and your firm’s reputation. To learn more about mitigating and managing cyber risk:

• Contact your professional liability insurance broker who can help you better understand risk control and risk transfer.
• Access the AICPA’s new cybersecurity risk management reporting framework, which can help you assess risk and controls within your firm or within your clients’ organizations.
• Attend “Beat the Breach,” on Nov. 1 at noon ET. This free webcast featuring Shark Tank star and cybersecurity expert Robert Herjavec discusses cybersecurity trends and best practices. Register now.

Stanley D. Sterna, J.D., Vice President, Aon Insurance Services, specializes in accounting professional liability.

Gretchen McCole, Vice President, Aon, Professional Firms, represents the accountants’ specialty and the AICPA Insurance Programs teams.

Cybersecurity liability courtesy of Shutterstock

     

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