Today, a highly qualified accountant is absolutely critical to your business. However, you have don’t already have an accountant that you trust, the is incredible array of accountants and firms to choose from: now the real question for you and your business is who do you trust?

Just to add in a little more confusion, there is a large number of other accounting related companies that would like to get your business as well: companies such as American Express, which are trying to grow their business base by increasing services that it provides to small businesses.

Like many different industries, the accounting business is changing rapidly. Things like tax returns have become highly commoditized with major distinguishing features simply being price; for many CPA’s, that is a tough position to be in.

With all this confusion and noise in the market place, then how do you select the right accountant? Our recommendation is start with the following set of guidelines:

* What is their reputation?: Talk to friends and business associates that have utilized their services…. believe me, they will have an opinion regardless if good or bad. One of the questions to really ping them on is does their accountant work with throughout the year in tax planning or is this just an end of the year relationship?

Another interesting question to ask is if your friends and business associates needed a different accountant, whom would they choose? Believe it or not, a firm’s reputation with non-clients can be critically important as well. Generally, people in an area know who has a good reputation but they may, or may not, have been able to switch to use their services.

* Qualifications: Believe it or not, there are some unscrupulous operators out there who did not obtain the right credentials and are not even licensed. Simply do your homework with your state to make sure the CPA that you are considering does not fall in this category.

* Size: One thing to ask yourself is if the 1 v 1 relationship of a small firm is important to you? The good side of this is that the principal of the firm will know your situation inside and out. The bad side of this is that a small firm may not have some of the specialized services you may require now, or in the future. Really, this is a personal choice.

* Specialization: Small firms may not have all of the accounting specialties covered. Today, accounting is a wide profession with a ton of sub-specialties. For example, there are some firms that specialize in handling the accounts of businesses involved solely in real estate investing. Some of the tactics employed by these niche firms can be very foreign to a general purpose firm with a small staff.

So, depending upon your exact needs for your business and personal taxes, there is a wide latitude of options available to you. However, no matter who you decide to use, make absolute certain that you ask for referrals and other people that think highly of their services.

Chris Anderson is a long time writer in the accounting industry. In addition, he is an advisor and writer for Fort Walton CPA .com.

[tags]Fort walton, CPA, selecting accountant[/tags]

Auditors can be either internal or external to the company being audited. External auditors are independent. They have tests which they check against the financial records of the company in question, hoping to find an accurate and fair view of the profits or losses at the end of the year. Auditors help companies know exactly where they stand, functioning like a handy full-length mirror.

Mirror, Mirror, on the wall, how far is our share price likely to fall?

But auditors don’t just deal with companies, but also large organisations included central and local government departments, auditing the public money spend and assessing potential savings which could be made. The job itself involves a lot of paperwork, checking balance sheets and profit and loss accounts to check accuracy, as well as communicating with members of the organisation to discuss transactions and financial dealings.

Internal auditors work either in the commercial field, or for public sector organisations. Some are self-employed and choose to specialise in a particular area of business. Often overseas opportunities exist for auditors in large, multi-national organisations.

External auditors work for a firm of chartered or certified accountants, the National Audit Office or the Audit Commission. The National Audit office audits central government departments and the Audit Commission audits local authorities and other public bodies.

Those who want to become an auditor need to register with a professional accountancy body and embark on a professional qualification in order to become an accountant. Strong candidates for auditing jobs tend to be employed in accountancy, financial management or audit post. Many work while studying and it tends to take between three and five years to complete, depending on the level of qualification itself and the knowledge and experience held when beginning.

Salaries in auditing tend to be reasonably generous; between sixteen and twenty-five thousand in the first year, going up to anywhere between twenty and forty thousand pounds depending on the individual, the location, and the size and financial performance of the organisation concerned.

If you’re looking for interesting work in the finance sector, auditing could be a good choice. By helping companies and organisations get their finances in order, you could also be equipping yourself with knowledge and experience which can translate into a diverse range of financial career roles. You can also get paid handsomely in the process, after completing an education course which qualifies you as an accountant. Many people enjoy rewarding auditing careers.

Careers in Audit is the world’s leading job board for audit professionals! Find a job in auditing today with Careers in Audit.

[tags]audit jobs, auditing jobs, audit career, auditing career, career in auditing[/tags]

You can barely turn on the television with watching a news feature about the credit crunch at the moment, thousands have lost their jobs, and many fear worse could still be around the corner.

But what does that mean for the average auditor? Well if you’re looking for a job now you may find a completely different set of circumstances to what you might be used to…

If you’re qualified, experienced and are able to communicate that to potential employees you’ll be okay but it can be a bit more challenging than the recent past. With that in mind we’ve put together a few short tips to make find your next audit job a little easier.

Every detail matters - whereas in the past you might well have been able to scrape by with your poorly-formatted CV or rushed covering letter, now more than ever, those little details are being used to shortlist applicants. Imagine if you’re recruiting and have to sort 5 strong candidates from over 100 applicants? Suddenly that typographical error can be the difference between making the list or not.

You’ve got to apply for more jobs - with any job hunt it’s always a numbers game; the more you apply for the statistically more likely you are to get a job. That doesn’t mean you need to carpet bomb every company with a vacancy remotely relevant, but it does mean you should no longer apply for one job at a time. If you do you might be waiting a long time to get that perfect audit role.

Consider contracting - to the experienced auditor contracting can be an interesting third way between employment or not. Many companies can really see the benefit of a flexible contractor at the moment that might mean you don’t have the same rights as a traditional employee but it does mean you have the chance to charge more!

Work on your soft skills ‘ in many hundreds of cases, talented auditors have lost their jobs but often those made redundant have been those lacking in the softer skills like people management, communicating clearly and concisely. If you can demonstrate real competency in these areas you’ll be likely to stand out amongst the talent pool.

It’s not all bad news, there’s still the perfect career opportunity out there for you. It’s just become a little more difficult to track it down, so you may need to spend more time searching online. Interviews are becoming a little tougher, but if you’re the right person for the job you’ll still be able to get a firm offer. But with a positive attitude you’ll be able to open yourself lots of doors.

Careers in Audit is the world’s leading job board for audit professionals! Find a job in auditing today with Careers in Audit.

[tags]auditing, audit, auditer,[/tags]

Have you ever considered tearing up your business only to put it back together again?

Based on the notion that we have been given a reprieve from the current global economic woes of the last year, business now has second chance to redeem itself and become like that T.V. show of the seventies.

“We can rebuild him, we can make him better than he was, better, stronger, faster”. Remember the “The Six Million Dollar Man”?

We now have the opportunity to rebuild our businesses via the lessons of the last year. We must respect the fact that we are not out of the woods yet, where we still have credit problems, high unemployment rates as well as weak expansion outlooks for the next two years, but we must at least use what we have learned and better our ability to survive and in some cases, thrive in this economy.

Yes, we can thrive in this economy. I have at least four clients from 2008 that have not only survived this turbulent economy but have gained profitability. Their businesses have done so well that two clients have purchased their competitors and two clients tout greater profits despite significant decreases in sales over their previous years.

Part of their success comes from taking their businesses apart and rebuilding their organizations from the ground up. We are not talking about hiring better skilled workers or laying off workers or even getting lucky and landing the big fish.

We are talking about a total dismantling of business philosophies, management styles and old ways of doing things that obviously do not work and will not work in this new economy.

More often than not, business owners enjoy sharing their insightful books and business philosophies with me that they have gathered over the years that to this date have not helped anyone other than the authors of those books buy bigger houses.

Books on business management are helpful if we use them and put them into practice but the one issue I hear often is, “we do not know how to implement what we have just read”, that is where my experience in dismantling a business and putting it back together comes into consideration.

My years of dismantling businesses via my operational accounting methodologies have allowed me to develop proven client results that not only re-organize business at its core, but also allow existing businesses to thrive in the current economic turmoil.
As I have written numerous articles and blogs about my expertise in Operational Accounting Consulting, the core of business is its accounting practices, where re-organizing a business’ core is a dissection of its accounting procedures.

In other words, we can trace all good or bad business initiatives, good or bad processes and efficient or inefficient operations to how we manage our accounting processes. Simply put, business operates relative to financial data.

Good or bad, financial data tells us what to do with what we have. If this information is incorrect, which it usually is, then our operations are incorrect, inefficient, etc, etc.

A great example here is how often business runs to the bank for a loan. Over fifty percent of small business in the U.S. use bank loans to fund weekly payrolls, hence the current increase in job losses. Businesses relied so much on bank loans to fund employment that when credit on those loans ran out, so did the ability to employ.

My point here is that a clearer understanding of business finances via a dissection of accounting processes would allow for a true understanding of business financial postures. This is how Operational Accounting truly affects business.

The clients I mentioned earlier were tied to bank loans as well as interest payments on those loans, where when we analyzed their businesses, we realized that the cash each client required to operate week after week was actually imbedded in better accounting and operating efficiencies gained when we dismantled their business.

One of these clients actually wanted to make a half-million dollar capital asset purchase instead of investing in consulting services in the hopes of making his operation more efficient.

When we dissected this client’s business via my Operational Accounting methodologies, we found that not only did this business not have the customer base to sustain the required increase in sales needed to make the monthly note on newly purchased capital assets, but his quest of gaining efficiencies was not in capital assets but in restructuring his processes.

Today, this client’s business is much more profitable despite lower sales, much more efficient and much better prepared to survive the tough economic times ahead. The rationalization of purchasing capital equipment became clearer once we analyzed his business via my Operational Accounting methods.

As there are many articles and philosophies about Operational Accounting, none has been able to match what I do via my particular approach to Operational Accounting.

As I have spent years specializing and perfecting the true definition of Operational Accounting, my proof is in the success of my clients that can achieve success after dismantling their businesses.

Luis Luarca is the Managing Partner of Allectus LLC, a management consulting company helping small to mid size businesses. For an extended version of this and other articles, visit http://www.allectus.com.

[tags]operational accounting, accounting operations, accounting, small business accounting, small business[/tags]

As I continue to travel throughout the U.S. helping businesses better themselves, I notice there are three major aspects of business that are troubling to most.

1.Job Costing
2.Structure/Organization
3.Sales and Marketing

In these difficult times, we need to feel better about how our business operates day-to-day, where some of us are struggling to figure out a way to become more profitable, and to be better organized for the sake of our sanity and employees. We also desire the ability to realize an ROI on all of our marketing efforts.

Some of my client solutions are simple and some of them are very complex. I am going to try and define a few simple tips in this article, where I will get into more detailed solutions in future articles.
Here goes.

Job costing is rather simple in the sense that we need to capture data and turn that data into information. In other words, there will be more work involved in capturing the basics needed to figure costs than actually producing relevant information from that data.

Job costing requires three variables, where we have to recuperate our costs when we sell something and the cost of selling what we sell is imbedded in our operations. In other words, we have to recover the three variables in what we sell.

Operations cost raw materials (COGS), labor and labor burden (payroll taxes, worker’s comp, insurance, etc) and operations cost us a percentage of our entire enterprise, or our building, electricity, general liability insurance, etc, etc.

So, the three variables are:
1) COGS
2) Labor (time) & Labor Burden
3) Overhead

Once we have captured these variables in the sales price of what we sell, we have won half the battle. By the way, winning have the battle is called breakeven.

Breakeven is the price that is not a loss nor is it a profit. In other words, we now have the opportunity to add profit to what we now know is our costs that are covered the second we sell what we sell.

Capturing the data that will feed information into a pricing model is actually complex in that we really have to catch time and record it.

Some business owners believe that doing a time study once a year is sufficient when capturing time.
Not true. You simply cannot capture time once a year, especially if you have many items in your inventory to sell.

Some businesses take the simple way out and buy technology that reads times per event, where I can confidently say that this is not the best solution being that you have not solidified your processes.

In other words, you have to understand what in fact you actually do as a business. Rather, how do you go about the production of your product or service?

Part of my Operational Accounting methodologies allows us to take a helicopter view of the business to find out exactly how we produce our products.

This allows us to capture processes as well as identify the varying stages in producing our product that require time.

For example, one of my best successes in understanding process via this helicopter view allowed me to identify for my client all that is involved in producing his metal boxes.

Not only were we able to capture time via every bend, weld, grind, paint and assembly of his boxes, but we were also able to increase efficiencies by realizing that some inherent processes were in fact creating bottlenecks.

We concluded this project by identifying hour much time it takes to make his boxes, factoring that figure with his cost of material and adding his labor burden.

Once we had this figure, we were then able to factor his profit margin. Yes, profit margin.

We must note that profit margin is not simply adding a percentage to material cost. Do you ever wonder why your business is always broke? It is probably because we are adding the wrong percentage to the sale price of our product or service.

Do you wonder why your Accountant or CPA never talks about job costing? Accountants and CPAs are tax professionals, not operational professionals.

I have built my business around Operational Accounting methodologies that are real and work for many clients with great success.

Most of my prospective client inquires come from frustrated business owners who cannot get a handle on their profits, much less their costs.

As this global economy continues to get tighter and tighter, we must ensure our businesses operate as they should. You owe yourself the benefit of a profitable, successful business.

What I have discussed here relates directly to the importance of structure and organization in your business. Having structure in your business allows you to manage and control costs to realize profitability.

Do not believe that your business is not entitled to profitability in this economy. All business is entitled to profitability regardless of external pressures. How our businesses are structured and organized is what makes business owners successful.

Luis Luarca is the Managing Partner of Allectus LLC, a management consulting company helping small to mid size businesses. For an extended version of this and other articles, visit http://www.allectus.com.

[tags]Operational Accounting, Business processes, job costing, costs of business, business management[/tags]

The IRS recently issued final regulations that are significant for not-for-profit organizations with 403(b) retirement plans (also called “tax sheltered annuities”.)

Essentially, not-for-profits will have to comply with many of the same reporting and auditing requirements that apply to businesses that operate 401(k) plans.

Be prepared. The new regulations are generally effective for tax years beginning after December 31, 2008. Thus, it is likely that they will affect your not-or-profit for the first time this year. The new regulations indicate that the IRS has become more serious about the operation of 403(b) plans. These plans have previously flown under the radar for much of the time.

Under the final regulations, an employer with 100 or more participants must provide financial statements in conjunction with the revised Form 5500. It has been estimated that this change will affect about 7,000 not-for- profits with 403(b) plans. An employer with fewer than 100 plan participants may qualify for simplified reporting procedures.
Keeping that in mind, here are some of the main elements of the regulations:

Auditing rules: Organizations subject to the Employee Retirement Income Security Act of 1974 are generally required to have their financial statements audited if they have more than 100 eligible participants at the beginning of the plan year. This requirement typically extends to tax exempt charitable organizations other than churches or government entities.

The audited financial statements must be attached to Form 5500.

Participant records: In furtherance of generally accepted auditing standards, 403(b) plan sponsors must collect participant records showing
activities for the year. This is especially important if individuals have been assigned personal account numbers that are not linked by the sponsoring organization.

Plan administration: As a general rule, 403(b) plan sponsors have had minimal responsibilities in this area. Traditionally, the bulk of the responsibilitieshave been handled by a financial institution. Auditors will need to understand the controls in place, whether or not certain functions are being outsourced.

Financial statements: Under transitional rules, financial information for 2008 must be included in the audited financial statements for 2009. In the past, some not-for-profits sponsoring 403(b) plans did not receive a statement of net assets and activities at the plan level. Therefore, they should promptly contact the 403(b) plan investment custodian to ensure that these requirements are satisfied. Finally, your organization should be informed about any significant deficiencies in accounting procedures or internal controls that surface. A “significant deficiency” is defined as an item creating a risk of error in financial statements that may reasonably matter to a user of the financial
statements.

This is a complex set of regulations. It is strongly recommended that you seek professional assistance to ensure full compliance with the new rules.

For More Information Contact: Leslie Flinn,
Director of Marketing, Warady & Davis
LLP, Certified Public Accountants & Consultants, one of the top 25
CPA and consulting firms in the Chicago area specializing in the Not-for-Profit industry. Contact: 847-267-9600, lflinn@waradydavis.com,
http://www.waradydavis.com.

[tags]403(b), auditing, regulations, form 5500, employee benefit plans, non profit, not-for-profit[/tags]

To qualify for being able to file shortened accounts a small company should satisfy at least two of three conditions. The three exemption conditions prior to April 2008 were that annual turnover is less than 5.6 million pounds, balance sheet total is less than 2.8 million pounds and the average number of employees is less than 50.

Where the financial year started after April 2008 the parameters increased to, annual turnover less than 6.5 million pounds, balance sheet total less than 3.26 million pounds and average number of employees less than 50.

Medium sized companies may also submit abbreviated accounts and the parameters to be classified as a medium sized company are significantly higher than those for a small company. For example for financial years starting from April 2008 two of the three qualifying conditions for a medium sized company to be satisfied were increased to sales turnover of under 25.9 million pounds, balance sheet total under 12.9 million pounds and average number of employees less than 250.

When a small company satisfies the audit exemption parameters it can maintain that audit exemption for a full financial year afterwards even if the parameters were exceed in that following financial year.

There are benefits in submitting abbreviated accounts as simpler and easier accounting records can be maintained reducing time spent on accountancy work. In addition although potential suppliers and financial institutions may require details of the year end financial accounts it is acceptable not to publish full details.

The main differences that can be produced under the banner of abbreviated accounts basically mean that a small company does not have to include a full balance sheet, profit and loss account or directors report which would normally be required by Companies House.

The small company is still required to submit a shortened balance sheet together with notes that explain the year end balances shown in the balance sheet. Under the audit exemption rules the year end accounts for a small company do not have to include an auditors report. When an auditor has prepared the accounts and submits a special audit report that report should state that in the auditors opinion the abbreviated accounts are being submitted in accordance with the appropriate section of the Companies Act.

Small companies must include a statement in the balance sheet that the year end accounts have been prepared in accordance with the special provisions contained in Part V11 of the Companies Act 1985. For financial periods starting after 5 April 2008 the accounts must be prepared in accordance with the Companies Act 2006 and include a statement that the special provisions applicable to small companies have been adopted

The statements to accompany the balance sheet of a small company submitting abbreviated audit exempt accounts are that:

The company was entitled to audit exemption for the financial year under the relevant section of the Companies Act 2006.

The shareholders have not required the company to obtain an audit.

The company directors acknowledge their responsibility for preparing accounts that comply with section 221 of the Companies Act 2006.

The company directors acknowledge their responsibility for preparing accounts which give a true and fair view of the state of affairs of the company and the profit and loss for the year.

The accounts have been prepared in accordance with the special provisions of the Companies Act relating to small companies

The rules on audit exemption apply not only to the year end accounts supplied to companies house but also those supplied to HMRC. This enables the small company to submit the short version of the corporation tax return, CT600, with the abbreviated accounts for tax purposes.

Terry Cartwright is a qualified accountant in the UK and producing Accounting and Audit Exemption packages for small limited companies in accordance with Companies House submission requirements.

[tags]accounting,audit exemption,year end accounts,small companies,abbreviated accounts,accounts,audit[/tags]

You might be under the false impression that because someone owns a medical practice they are very wealthy. It might be true, but just as easily it might not. If a physician isn’t making the kind of money he should it might be because he doesn’t have the skills necessary to take care of the business side of his business.

A physician who recognizes this weakness will use the services of a medical billing company to take care of the details of his office.

These companies have a trained staff of medical billing professionals who are trained to take care of every billing need a medical practice would have. They can handle the insurance details as well as the medical coding part of the business.

Insurance companies can be very difficult to work with. They will deny a claim for the slightest reason and some of those reasons border on the ridiculous.

A medical practice that is quite busy with patients and chooses to submit their own claims to insurance companies will find that their claims are denied a good deal of the time. If a medical billing company is used, however, this does not happen as often.

A medical practice that sees a great many patients must fill out the insurance claim forms for every one of those patients. One person could be responsible for filling out the forms for every patient that visits the practice. That person must write out the insurance forms and send them off to the insurance company. If one error is made on those insurance forms the claim will be automatically denied. It is then sent back to be corrected and filled out again.

This can often overload the person that is responsible for handling the medical insurance forms.

When the claims are all filled out properly and everything is fine it can still take the insurance company months to send a check. If the practice is relatively small this can wreak havoc on the budget of the small practice. Especially, if there are claims that are denied all in the same time period.

When a medical billing company does the work the practice is relieved of the duty to handle the insurance forms and all of the problems that are associated with it. There are professionals working on the claims and getting them to the insurance company through electronic methods. This eliminates the need to enter the claims manually to the insurance company.

A medical billing company will also make sure that the claim goes through the process error and problem free. They will constantly monitor the claims to make sure that there is no problem. Most of these businesses have a success rate of more than ninety percent.

An electronic submittal of a claim gets either rejected or accepted right away. If it is accepted the check will be sent to the practice in days not months as happens with a manual system.

If the practice is small a business that will get them their checks from the insurance company quickly is the difference between success and failure. If the practice thinks that the cost of a medical billing company is too much for the small business to afford they should consider what is at stake and then analyze the cost.

A medical billing company will work for any type of practice no matter what kind of medicine they practice.

Peter Geisheker is CEO of The Geisheker Group marketing firm. One of the types of clients that Peter helps are medical billing services

[tags]marketing,medical billing services,medical billing companies[/tags]

“Just when you thought Sarbanes Oxley concerns had been sufficiently addressed so that non-public companies could take the issue off their dashboard, things have changed, ” says Gary W. Patterson, Enterprise Risk Management expert and speaker. He forewarns that Enterprise Risk Management (also referred to as ERM) will soon become a business issue for almost every business on the planet, including family-owned businesses, private companies, and nonprofits. This is a strategy shift for many of these organizations, which up until this point thought Sarbanes Oxley (sometimes affectionately known as Sarbox) applied only to public companies, and big ones at that.

One major reason for this sea change in philosophy is that both Standard & Poor and Moody are soliciting comments on their approach to ERM analysis and how they plan to factor it into their ratings. Their discussions will accelerate activity under way where bankers, governmental organizations, and regulators, in particular, have been considering the need for stronger corporate governance. For them Sarbox is an easily obtainable platform to use for drafting programs they believe should exist in corporations directly or indirectly under their jurisdiction. Lest you have any doubts, note how user friendly definitions from Wikipedia describe this trend.

“In business, enterprise risk management (ERM) includes the methods and processes used by organizations to manage risks (or seize opportunities) related to the achievement of their objectives. ERM provides a framework for risk management, which typically involves identifying particular events or circumstances relevant to the organization’s objectives (risks and opportunities), assessing them in terms of likelihood and magnitude of impact, determining a response strategy, and monitoring progress. ERM can also be described as a risk-based approach to managing an enterprise, integrating concepts of strategic planning, operations management, and internal control. ERM is evolving to address the needs of various stakeholders, who want to understand the broad spectrum of risks facing complex organizations to ensure they are appropriately managed. Regulators and debt rating agencies have increased their scrutiny on the risk management processes of companies.” per wikipedia.

Exactly when ERM programs will be implemented is a tougher question. Understandably, non-public companies have a range of reasons for preferring to delay the time when ERM factors will apply to them. However, the question is WHEN - not IF - some form of Enterprise Risk Management requirements will be applied. Family-owned business, other forms of private companies, and non-profits have been forewarned in a number of publications, speeches, and white papers over the last two years.

Some will say that we are drowning in white papers on ERM, corporate governance, Board of Directors, and risk analysis available and dismiss the issue. But those who are proactive, not reactive, will find the time well spent if they begin some level of enterprise risk management dialogue before something critical happens and your company is being second guessed by the ratings agencies, your auditors, or worse yet, a trial attorney.

The topic most companies neglect at their peril is the impact of a fast-approaching clean-energy-influenced economy. Here, we must reassess how much sooner we need to think about a renewable energy world as it relates to areas of your business that will be impacted both positively and negatively, and how that will change your company’s current and long range business plans, including the magnitude of those changes. After all, most C-level executives and their top management teams that I know do not like being second guessed and blind sided.

Gary W. Patterson has helped companies improve their profitability, reengineer their business models, and strengthen or gain competitive advantage in the marketplace. You can reach Gary at www.FiscalDoctor.com or take the free Fiscal Test at http://fiscaldoctor.com/fiscaltest.html.

[tags]ERM, enterprise risk management, renewable energy, business coach, strategic planning, ROI[/tags]

The following item was reported in a recent American Institute of Certified Public Accountants communication:

“The Exempt Organizations Division of the IRS had posted on the IRS web site a controversial document setting forth the Service’s view on what constitutes good governance practices for tax-exempt entities. Included in the document was the suggestion that audit firms be rotated on a regular basis, with five years as the suggested term. The Institute protested the inclusion of this item in face-to-face meetings and in writing. Last month, the IRS dropped the document from its website, explaining that the new Form 990 sets forth the IRS’ current position on good governance practices which do not include the five-year rotation suggestion. ”

This is another sad example of a professional organization placing the good of its members over the public interest. The Institute has a long history of this type of advocacy. Why would the IRS recommended a five year audit rotation as a good governance practice for non profit organizations?

Audit rotation is designed to overcome two problems that can occur if an organization hires the same audit firm year in and year out. The first problem is that there is a tendency for audit firms to get too cozy with the management of the organizations they are assigned to audit. Personal and professional ties can easily impede auditor independence. Secondly, audit rotation provides the opportunity for the organization to be examined with a fresh pair of eyes.

This second issue is subtle. Accountants are creatures of habit and checklists. Things are done the same way as they were last year and often in a very mechanical and non critical manner. Many audit procedures and tests are numbingly mechanical and clerical and it is very easy to not view the audit process from a sufficiently critical and analytical point of view. Sometimes the most glaring internal control weaknesses can be overlooked simply because the auditors were not looking at the big picture but only concentrating on the minutia. A change in auditors guarantees that the organization in its entirety will get a fresh look and glaring internal control problems that may have been overlooked by the prior auditor may get picked up by the new one.

Of course CPA firms with long standing engagements with non profit organizations do not want to give up them up for obvious financial reasons. So these firms use their professional association, the Institute, to advocate against the obvious good governance practice that is clearly in the public interest. Such cynicism is sadly the rule not the exception for most professional organizations.

The IRS also should share some of the blame for caving into the audit firms on this issue. But it probably was not the IRS staff that caved but the higher ups who were pressured from the Bush administration. Whenever there is a divergence between private sector interests and the public interest you can pretty much count on the Bush administration siding with the private interests.

In any event the IRS had the right idea to begin with. Non profits should rotate their audit firms on a regular basis.

Michael Sack Elmaleh is a Certified Public Accountant and Certified Valuation Analyst. His book, “Financial Accounting: A Mercifully Brief Introduction”, has received wide critical acclaim. He has nearly 30 years of accounting and 10 years of teaching experience.His web site is understand-accounting.net