Discussion:Signing financials as an EA

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Discussion Forum Index --> Accounting Questions --> Signing financials as an EA


Mld123 (talk|edits) said:

17 September 2013
I'm an EA. My client needs financials reviewed/signed by a CPA. It sounds like the city might accept the signature of an EA but they want a letter from me with the financials. This is the first one I've been asked to provide.


I did a search and found a sample letter on the AICPA website. The only phrase that concerns me is "My responsibility is to conduct the review in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants."


Obviously I can adhere to those standards without being a CPA. Is it problematic to make that statement as an EA?

SashkaCPA (talk|edits) said:

17 September 2013
Will you be penalized by any means if you do not comply but only state that you did?

EatonCPA (talk|edits) said:

17 September 2013
This is a state regulated area and you'll need to check your state laws but I am pretty sure you have to be licensed as a public accountant in order to compile financial statements to be used by third parties (as opposed to management use only or for the purposes of generating a tax return).

Mld123 (talk|edits) said:

17 September 2013
We're only conducting a review of the financials, not an audit. Could we say we conducted the review in accordance with GAAP, to remove any reference to CPA's?

Seaside CPA (talk|edits) said:

17 September 2013
There are 3 different types/levels of financial statements: compiled, reviewed, and audited. Pretty sure only licensed CPA's can issued reviewed and audited financial statements.

Seaside CPA (talk|edits) said:

17 September 2013
There are 3 different types/levels of financial statements: compiled, reviewed, and audited. Pretty sure only licensed CPA's can issue reviewed and audited financial statements.

EatonCPA (talk|edits) said:

17 September 2013
I'll go back to my previous statement ... you need to know what constitutes public accounting in your state and make sure you are appropriately licensed. In some states, anything involving financial statements that are intended for use by an unrelated third party is deemed to be practicing public accounting. CPAs aren't CPAs just to do audits and this is not like taxes where a CPA and EA are essentially on the same footing. It's also likely why the rule says "financials reviewed/signed by a CPA."

Kevinh5 (talk|edits) said:

17 September 2013
In most states, EAs can't issue reviewed statements. That is an 'attest' function reserved for licensed CPAs and PAs.

Kevinh5 (talk|edits) said:

17 September 2013
Have you discussed with the 3rd party why they need a reviewed statement?

Bottom Line (talk|edits) said:

18 September 2013
This is part of why I do sub-work for a CPA. He can handle those once every couple of years things that I can't.

Mld123 (talk|edits) said:

18 September 2013
Kevin: I did talk with the 3rd party -- they didn't know how strict the CPA requirement was. It's a city licensing board run by volunteers. I talked to the lawyer who advises them and he didn't know either, but he seemed open to an EA's signature. He said to provide the letter and if it's not acceptable, we'll go from there.

EatonCPA (talk|edits) said:

18 September 2013
Not sure you're grasping the entire potential issue here.

[1]

Kevinh5 (talk|edits) said:

18 September 2013
You ABSOLUTELY cannot use terms like 'review' and any of the AICPA language.
If you don't already know what your state accounting laws allow, then this is NOT the engagement for you.

PollyAdler (talk|edits) said:

20 September 2013
He can do a compilation, can't he? I think he probably can. No CPA in his right mind should be doing a review anyway. I guess they do them though.

Mid123, you need to get some of Bruce Jenner's materials.

The lawyer doesn't know the difference. If he'll accept what you do and you need the money, do the job. Just make sure that this isn't a licensing board for a toxic waste dump or anything like that, or a license for a big dam that might collapse.

If it's for the volunteer fire department, make sure none of the personnel are weekend warriors or secret drinkers. You don't want their truck veering off the road and doing more damage than a fire would do in the first place. (Just footnote that they have a drinker on board but don't reveal his name or you could fall victim to one of the medical privacy laws.)

Oh, heck, it's not Bruce Jenner, that is the Olympic star. I'll try to remember the guy I'm thinking about today. Kevin probably knows him. He's a CPA and he does a lot of CPE tours (he covers accounting topics too and he has an excellent book of engagement letters and guides).

P.S. Be sure it's not the electrician licencing board. If they license an electric chair that malfunctions, the Board will be sued and you'll be in trouble for not recommending that they increase their reserves and buy extra insurance, or at least footnoting the issue. Nuclear plants (or Nuclear licencing boards): until you have more experience, avoid these.

Is it Don Jenner I'm thinking of? Ken Jenner? And you can use GAAP standards, but by definition, GAAP is for CPAs, so you cannot write "this is done according to GAAP". Use OBA-Tax (other basis of accounting-tax. I forget the intials for it. And no, you have not been asked to do a "Review" as the term is defined by CPAs, I would seriously doubt you've been asked to do that.

Check the sovereign immunity laws for the Board, especially if they are permitting all terrain vehicles or one of those machines that the man went off the cliff with over in England.)

If one of the board members has beady eyes, footnote it, even in a compilation.

CrowJD (talk|edits) said:

20 September 2013
If you live in a small town and this is for a small town licencing board, go today, without fail, and buy Madame Bovary (Flaubert) and read it, and remember, the books is actually about Charles, not Emma. Keep your eye on what happens to Charles.

Every single professional who works in a small town or businessman who does business in a small town needs to have this book on his desk at all times, sitting right beside the Bible, and he should be able to quote the novel like scripture.

They don't teach this at Harvard, but they should. We proud ourselves on being better than Harvard around here.

Gazoo (talk|edits) said:

20 September 2013
It's not Jenner, it's Jennings Tax Seminars (he has or had an accounting type seminar too, with a fantastic book of forms, engagement letters and so on).

And yes, find out your state law, though that is not always the easiest thing to do, because sometimes people on the Board of Accountancy don't even know the real law on the matter in their state AND there is a strong, and probably justified, feeling among the people on the Board that this type work belongs exclusively to CPAs.

The lawyer you speak of could be nicest guy in the world, most of them know nothing about financial or government accounting though. Or, he could be a trickster trying to dupe someone into signing on to something. I have a feeling the lawyer here is probably on the nice side of the aisle, but you never know.

Finally, I agree with Crow....there is no finer book ever written on the dangers attendant to small town living and the practicing professional than Madame Bovary. Don't go out in the country without that book if you are a city boy or city girl; and keep your eyes focused on the totality of events that happen to poor Charles.

Mld123 (talk|edits) said:

20 September 2013
To follow-up on PollyAdler's post: what constitutes a "CPA review"? This particular task is absurdly simple: they just want us to confirm the ratio of food sales to liquor sales for a restaurant. But simple as that may be, isn't it still a review?

(I read Madame Bovary in college but don't remember anything about it.)

CrowJD (talk|edits) said:

20 September 2013
In my opinion, it's not an official review. I'm surprised they don't have some kind of state forms or state guidelines to help you understand exactly what they want from this engagement.

I think you can do this engagementment. The sad thing is is that I think you are so clueless about accounting terminology that you do not know what vocabulary to use when talking about what they may want. I don't fault you for this at all, so I am not being critical. I am not a CPA myself, nor do I have an accounting degree...so I'm sure I make mistakes in terminology also.

In other words, what they mean by a review may have nothing to do with any CPA type review at all...but you don't know enough to make the determination, or to ask the right questions.

You might have to hit the state liquor websites and have a real frank talk with the attorney and just ask him: is this something they even need an accountant for? Do CPAs usually do this for them and other counties/cities? If so, I would thank them for considering you, but I would turn down this engagement. If you have any doubts whatsoever, do not take this on.

Smktax (talk|edits) said:

21 September 2013
Looks like the practice of public accountancy to me (at least in NY), which I believe must be done by a CPA or a PA.

http://www.op.nysed.gov/prof/cpa/article149.htm

Podolin (talk|edits) said:

21 September 2013
http://www.grfcpa.com/resources/publications/audit-review-and-compilation

Gazoo (talk|edits) said:

21 September 2013
I would send you to the public library, but the accounting books in the library are treated like a poor stepchild, and they are usually very out of date. If they have anything on GAAP, it's usually the little pocket GAAP they keep in the reference section, also out of date.

I ran into something really hilarious in my city about 7 years ago. I was excited so see that our public library was actually buying a lot of books on accounting. Wow? What is going on, I ask myself.

Well, I go down to one of the libraries and it turns out the publisher on all the new books is Routledge. lol. These were all UK accounting books based upon UK law and standards. The librarians had no clue what they were buying, they just got a good deal on the books appearently, and they bought some "accounting books" for the library. Pretty much useless dust collectors these books are.

Nothing wrong with Routledge if you want a book on science, or philosophy or many other things, but for the full picture of American accounting...generally not a good idea to be buying these books for your library.

Mld123 (talk|edits) said:

21 September 2013
The licensing board rules & regs just say the food-liquor sales report needs to be signed by a CPA. Sometimes people use that term generically, so I inquired to see how strict the requirement was, and no one could answer me. I know I am qualified to confirm this data; but if that constitutes an official review, then I guess my feelings are immaterial.

CrowJD (talk|edits) said:

21 September 2013
The CPAs here can correct me if I am wrong, but if you think the Internal Revenue Code is confusing, then just try to figure out the rules and standards that govern American financial accounting, and non-profit accounting, and association accounting..and I don't know what else. I'm sure it makes sense to them (at least just after they pass their tests), but to me it seemed like a regulatory labyrinth beyond all reason.  :) I gave up on trying to understand it as a layman.

Yes, if it needs to be signed by a CPA, then it needs to be signed by a CPA.

P.S. I think the confusion that reigns amongst and betwixt the ruins rules and standards is maintained on purpose to give these experts just a little room (or just enough room) to "adjust" the numbers, or to "adjust" other facts associated with the numbers, or both; if you get my meaning. *wink*

Podolin (talk|edits) said:

21 September 2013
immaterial Yet another auditing standard. Nice pun, though.

Joan TB (talk|edits) said:

21 September 2013
"Food-liquor sales report" doesn't sound like a request for "reviewed financial statements" as defined by the AICPA, etc. anymore than say, a sales tax report constitutes a reviewed financial statement. Sounds like they only want a breakdown of revenues into the 2 classes. BUT, if their licensing board says a CPA must sign (I would say a ridiculous restriction!) then you may be stuck with it until their rules/regs are changed. So you need to find out EXACTLY what the rules/regs SAY - word for word. Are you absolutely sure their rules/regs specify "Certified Public Accountant"?

I get this sort of thing all the time when a small non-profit or church wants an "audit". They don't mean as defined by the AICPA, they mean 2-3 other official folks who are not normally check signers to review the disbursements for appropriate approval levsls and documentation, etc. Definitely NOT an "audit" that CPAs perform.

Mld123 (talk|edits) said:

23 September 2013
The regs say the application "may be approved provided the licensed establishment derives 60% or more of its gross revenues from the sale of food. Proof of this percentage shall be computed, documented and signed by a certified public accountant." I agree, this shouldn't require a CPA. But not enough people know what EA's are. We need to spread awareness somehow. March in an EA Pride Parade.

Captcook (talk|edits) said:

23 September 2013
In my experience, EAs have never been viewed as a group of professionals to provide attestation services, which is what this is. This franchise has been provided exclusively to the CPA community. EAs, on the other hand, have been tested on IRS procedure/process in much more detail than CPAs are. If you want to provide attestation services, get your CPA certificate. If you feel you are qualified to provide these services, I would also encourage you to consult your E&O insurance provider and determine the increase in premiums you will encounter. I know many CPA firms who do not do attestation work in no small part because they don't want to pay the requisite insurance premium.

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