22 Nov How to Protect Yourself
As with any engagement, the best line of defense is: document, document, and document. The public perception is that CPAs are excellent at documentation. Even when it is not necessary, lack of documentation by a jury is often interpreted as neglect. Even a note in the file can sway the jury. Below are some pointers from an article in CAMICO Impact by Ed Eksterowicz, CPA:
- · Documentation should be factual and professional
- · Maintain only the final version of work products
- · Do not keep notes past the time they have value
- · Consider documentation as if it were presented to they jury
- · Always document significant communication and follow up
- · Make documentation a habit
- · Seek legal counsel as needed
- · Retain all documentation for five to seven years, unless a greater time is required by law (This issue is also addressed in the President’s Message in CAMICO Impact, Issue 59, Spring 2003, page 3)
Per a discussion between the author and Suzanne M. Holl, CPA, we developed the following 4 guidelines for any CPA who intends to use SSARS 8.
- 1. Create an engagement letterand, although it is not required, have the client sign it prior to beginning any work.
- 2. Address the engagement as consulting versus compilation services. For example, work from the chart of accounts or the client’s list of issues. Avoid phrases like, I am going to “clean up your books” or “let’s make your books accurate” that imply financial statement work.
- 3. Keep good notes to document what was done. The form we use can be obtained from as a PDF form. Note, however, that if you document you are going to do something, make sure you do. If it is documented that the client is going to do something, make sure you follow up with the client to confirm it has been completed.
- 4. Back up the file and take it with you (or e-mail it to yourself) and then retain it for support in the future should it be needed.
From a risk management standpoint, the benefits of SSARS 8 do not necessarily outweigh the potential risks of not complying with SSARS 1 and having the compilation report as part of the financial statements. The main differences are that with SSARS 1 a written understanding is recommended where as with SSARS 8 it is required and since the financial statements are intended for management there may be some procedures not required for obtaining additional or revised information from the client. Otherwise, the engagements are basically the same as they relate to forming an understanding with the client, an understanding of their business, and the need to read the statements to confirm they are free from obvious material errors. Basically the time to document the departures and perform the standards will usually result in the same number of billable hours.
According to the CAMICO IMPACT article mentioned above “When you think about it, it seems foolish for a CPA to risk having a “management use only” compilation get into the wrong hands, a third party, without the protection of the compilation report putting all users on notice regarding the scope and limits of the financial statements.”