Recent guidance from the AICPA’s Peer Review Board could transform the way that firms get evaluated by their peers, and could lead more firms to Google their new clients to find out more about them before accepting the risk.
Raymond Nowicki, managing partner at Nowicki and Company LLP, in West Seneca, N.Y., gave an update on recent revisions to the quality control standards during a conference on private company accounting and auditing at the New York State Society of CPAs’ Foundation for Accounting Education on Thursday. He pointed out that engagements now need to be selected from a firm using a risk-based approach correlating with the firm’s make-up. The risk-based approach also extends to firm partners and clients. For example, if a firm has become accustomed to one of its partners being picked, that may change if another partner’s practice area involves more risk. Like audits in newer auditing standards like AS 5, peer reviews now are more risk-based rather than arbitrary.
“The peer reviewer may ask about your engagements where some new audit standards were used or new accounting standards were used,” said Nowicki. “There may have been going concern issues, or a new audit guide was issued. They will look at testing client acceptance issues, and what your quality control guide says you should do before accepting a client.”
Nowicki noted that some firms are getting “really creative” about what clients they will accept.
“The world is getting global,” he said. “There are people coming into our office who aren’t from this country and we’ve never met them before. What is our policy? Google them.”
Using Google, Nowicki was able to learn that one prospective client had already been sanctioned by the SEC and he was only 24 years old. “Now he’s going to become the CEO of a company that’s looking to go public,” he said. “Is that an exposure? We dug into it. We even had a private investigator dig a little further into his private background.”
Nowicki Googled the name of another potential client. The search engine told him that someone with that same name and age had been found guilty of possessing a weapon, menacing and endangering the welfare of a child. The firm asked an investigator do a rundown on him and, fortunately, it turned out to be another person with the same name.
“You don’t know who your clients are,” said Nowicki. “You say your clients are your best friend. When was the last time you had Thanksgiving dinner with them. When was the last time you got a card from them? Ha!”