Letters

Confusing the Issues

I raised my eyebrows when I scanned “New Rules, New Responsibilities” (JofA, Aug.00, page 53). The section, “Quarterly independent audits,” (page 55), contained a small, but important, error.

In the text that followed, the author noted “Under SEC rules, a company must have an independent public accountant review its quarterly financial statements before filing them with the SEC. This requirement previously applied only to annual financial statements.”

Readers unfamiliar with the SEC’s requirements may be somewhat confused. I believe the author wants readers to know independent audits have been required on an annual basis for SEC filers but that now reviews of quarterly financial statements also are required.

In my opinion, this issue is extremely important. Much of the general public does not understand what an audit entails, much less a review. It would be unfortunate if an article in the JofA added to the confusion.

Robert J. Dosch, CPA
Assistant Professor of Accounting
University of North Dakota
Grand Forks, North Dakota

A Different Approach

“The Ins and Outs of SERP Swaps” (JofA, Oct.00, page 44) indicates that income and estate taxes consume 83% of assets and future growth. This high taxation computation is achieved by applying the 31% income tax rate twice, once for accumulating the assets and again for earnings on the investments. However, the increase in wealth to descendants is only the original accumulation and does not include the subsequent earnings on investments.

I suggest that the pie chart show the following:

Victor G. Trivett, CPA
Miami

Where Were the Best Practices?

I believe the JofA did its readers a disservice by using a misleading title on a recent article, “Best Practices for Audit Efficiency” (Sept.00, page 65).

Best practices were largely absent. Instead, the article focused on basic and “low-hanging fruit” ideas that have been practiced for many years. Also, a few peculiar recommendations were included, such as “sending confirmations” and “preparing lead schedules.”

Based on the article’s title, I expected to read about new ways to test controls or innovative analytical procedures. Instead, control testing was not mentioned, and the areas identified that could be addressed analytically were basic and obvious.

I was also surprised at the omission of best practices involving technology. Why weren’t the exciting ways in which data extraction software is being used discussed? Or how auditors are using the Internet to create stronger analytical procedures? Or how financial statements and tax returns are being linked seamlessly with trial balance software? Or how local firms are using paperless audit packages? Instead, the only recommendation was to “use laptops and even portable printers to facilitate efficiency in the field.”

Finally, the story ignored a very important best practice—changing a firm’s culture so that auditors are always searching for more efficient ways to accomplish their objectives, rather than simply following last year’s workpapers. Unless a firm is very small, this is a critical issue that must be addressed to achieve significant efficiency gains.

Although this article appeared in September 2000, it would have been more appropriate in the September 1990 issue. It’s too bad the JofA failed to conduct research that would identify the real best practices auditors are implementing right now.

Thomas P. Houck, CPA
President
AuditWatch, Inc.
Herndon, Virginia