On Solving Problems before They Become Crises

By Grumet, Louis | The CPA Journal, February 2006 | Go to article overview

On Solving Problems before They Become Crises


Grumet, Louis, The CPA Journal


Over the last few decades, budget cutbacks have resulted in understaffing at many government agencies. Consequently, some agencies, trying to ensure accountability, require CPAs to provide opinions on cost reports that could extend beyond their traditional audit work in connection with the entity's financial statements. A related consequence of these broader cost-reporting requirements is that many nonprofits and government agencies increasingly require audit-related services but don't want to pay for them. This has been a particular problem with school districts and local governments, as well as many nonprofits. Agencies should not, however, choose unrealistically low bids if a CPA's work is to meet public expectations. CPAs are sometimes put in the difficult position of walking away from engagements that may require them to underperform and in the process to potentially violate professional ethical standards or to provide services without pay. CPAs who accept a low rate need to be willing to perform the work at a high level of professionalism and to absorb the costs.

My understanding is that even with the tremendous publicity concerning the Long Island school district problems that resulted in new state legislation and a significantly increased number of New York State auditors, school districts are not significantly upgrading the services they contract for. I suspect the same is true among many other units of local government.

Unintended Consequences for New York State CPAs

Under new state legislation enacted last year, many CPA firms are having to significantly expand the services they provide to school districts. Even before that, the New York State Department of Health (EXDH) and some related agencies had been requiring CPAs' attestations in health-related cost reports that made many CPAs feel caught between a rock and a hard place: For a CPA to not sign the certification could lead to financial or other penalties from the agency for the clients or themselves, but signing it might violate a CPA's ethical standards involving attesting to work he didn't perform. …

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