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American Institute of Certified Public Accountants. Private Companies Practice

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University of Mississippi eGrove Newsletters American Institute of Certified Public Accountants (AICPA) Historical Collection 12-1989 PCPS Advocate, Volume10, Number 6, December 1989; Annual Report, 1988-89 American Institute of Certified Public Accountants. Private Companies Practice Follow this and additional works at: https://egrove.olemiss.edu/aicpa_news  Part of the Accounting Commons pcpsAdvocateAnnual ReportSPECIAL ISSUERobert L. IsraeloffChairmanPCPS Executive CommitteeDecember 1989 Vol. 10Activities of the Private Companies Practice Section.Published by and for members of the AICPA Division for CPA Firms. Editor: John R. Mitchell.To the Members of PCPS:I am very pleased to present the first Annual Report of the Private Companies Practice Section. Each of the Section’s past 12 years has been characterized by significant accomplishments, and this year was no exception.This brief report summarizes PCPS achievements and activities from August 1, 1988 through July 31, 1989. It is offered as a service to members and as an indication of our growing scope and influence within the profession. We hope that, as you review it, you will make note of any comments or questions and send them to us.The great strength of PCPS lies in our ability to act as an advocate for local and regional firms and the clients they serve. In this role, we attend meetings with standard-setters, respond to exposure drafts, monitor AICPA staff and committee activities and make sugges­tions in informal discussions. These activities would be too much for any one firm to tackle—but together, we make a difference.Since 1977, PCPS member firms have formed the leadership core of local CPA firms. We are proud of our accomplishments to date and will continue to expand our scope to address relevant professional, technical, quality and management issues.I would personally like to thank the committee members who take many hours away from their practices to direct PCPS activities. And, on behalf of the entire organization, we thank you for your ongoing commitment and support.Sincerely,      PCPS Activities, 1988-89As stated in our charter and authorized by the AICPA governing Council, the objective of the Private Companies Practice Section is “to improve the quality of services provided by CPA firms to private companies.”PCPS is an organization led and managed by committees of local practitioners who volunteer their time to help the Section achieve that objective. During the 1988-89 fiscal year, PCPS spearheaded many new programs to (1) increase its effectiveness as an advocate for local firms, (2) continue to promote the highest quality standards and (3) initiate new services and programs to benefit members.This report is organized into sections that represent the committees and task forces responsible for each area.Member ServicesGoal—To provide members with useful tools for practice management, marketing and quality control.In November 1988, PCPS held an organi­zational meeting in Chicago for a new group called the PCPS “TEAM,” which stands for “ten at most.” Based on the overwhelming response to the concept of practice manage­ment support for firms with ten or fewer professionals, we scheduled three TEAM meetings in September and October 1989. We organized each meeting as a roundtable of practitioners to provide the most valuable resource PCPS has to offer—the experience and practical knowledge of its members.More than 640 CPAs attended the 1989 PCPS annual conference, breaking all records. Participants ranked the conference 4.37 out of a possible 5.00 on the “satisfac­tion” index. With a strong variety of practice management and technical topics, it was easily the biggest and best conference PCPS has ever held, setting a new standard for our 1990 conference in Orlando in May.This year, PCPS helped members capitalize on a new business opportunity generated by the sharply increased demand for experi­enced reviewers in the new AICPA Quality Review Program. To respond to this need, PCPS created and distributed a “Firm onFirm Directory” which lists PCPS member firms that expressed an interest in conducting peer reviews and quality reviews. All practice units in the AICPA received a copy of the booklet.As a continuation of our commitment to quality control, PCPS coordinated with the AICPA Tax Division to help develop a “Tax Practice Consulting Service." This service will be a hands on review of a firm’s tax practice, available to member firms on a voluntary basis. PCPS made sure that the task force developing materials for this function had appropriate representation from smaller firms.PCPS Expenses by Activity*Public relations and communications 25.2% Membership directories 18.0%Peer review charges 17.0% Printing and miscellaneous 28.1% Newsletter 11.7%*Excludes section staff, normal meeting expenses and other costs that are paid out of the general budget of the AICPA.Self-RegulationGoal—To maintain and improve an effective program of practice monitoring for firms that are committed to quality.In the 1988-89 year, PCPS accepted 516 peer review reports. We anticipate that about 1,000 PCPS firms will be reviewed in calendar 1989. The number of reviews is up sharply from previous years due to the rising level of membership in the Section. To handle this increasing volume, the Peer Review Commit­tee held more meetings and added two additional committee members. PCPS com­mittees reviewed the AICPA’s “Standards for Performing and Reporting on Quality Reviews” as they were being developed and provided input to the Quality Review Executive Committee task forces on ways to minimize differences in the two review programs.The PCPS “Consulting Review” program, initiated in 1985 as a low-cost, confidential way for firms to prepare for peer review, has always been available to nonmember firms. This year the Section increased its efforts to promote consulting reviews, both because of their effectiveness and because they are a good way to interest firms in PCPS member­ship. We also reviewed and revised the program guidelines to ensure that the program prepares firms for both quality reviews and peer reviews.Part of the Peer Review Committee’s responsibility is periodically to review standards and procedures and, when necessary, revise them to meet the needs of members and the profession. This year, in fulfilling that function, the committee changed the review report wording for firms without auditing practices; clarified the requirement for current SEC experience for reviewers of firms with SEC engagements; added a requirement that a governmental audit be reviewed; and changed some of the review checklists and work programs.PCPS offered its assistance to the SEC Practice Section as that Section considers the best way to help smaller SECPS firms meet the concurring partner review require­ment for public company clients. The vast majority of these SECPS firms are also PCPS members.Division for CPA Firms Peer Review Reports AcceptedThrough July 31, 1989 (1978-89)Unqualified with LOC* 81.4%Unqualified without LOC* 7.6%Qualified 9.9%Adverse 1.1%*LOC = Letter of Comment2December 1989Technical IssuesGoal—To ensure that the views and concerns of local practitioners are communicated to standard-setting and other technical committees.The Technical Issues Committee (TIC) is the formal PCPS liaison to the Financial Accounting Standards Board, the Govern­ment Accounting Standards Board and a variety of senior AICPA committees, includ­ing the Auditing Standards Board, the Accounting and Review Services Committee, the Accounting Standards Executive Committee, the Government Accounting and Auditing Committee and Professional Ethics Executive Committee.Since its inception in 1980, the TIC has issued well over 100 formal letters of comment—each of which represents many hours of evaluation, discussion, debate and decision-making. The committee works from the standpoint of the local practitioner with a bias toward reducing “standards overload.” It evaluates standards before they are issued and recommends revisions. When neces­sary, TIC will alert the AICPA to a need among local practitioners for additional guidance in implementing or interpreting existing standards.In the 1988-89 year, TIC issued 20 letters of comment. A summary follows.Accounting and Auditing: TIC reviewed and commented on the following proposals:• Proposed SFAS “Deferral of the EffectiveDate of Recognition of Depreciation by Not-for-Profit Organizations”• Proposed Guide “Common Interest Realty Associations”• SFAS No. 96 Implementation Guidance• Proposed Accounting and Reporting Guide for Insurance Agents and Brokers• Proposed SAS “Special Reports”• EITF Issue “Balance Sheet Presentation of Savings Accounts in Credit Union Financial Statements”Taxes: TIC urged the AICPA Tax Division to issue a second response to help the IRS develop an even-handed penalty system.Government: On treatment of cash flows, TIC urged the GASB to minimize the difference between cash flow statements required by GASB and FASB. TIC also reviewed the GASB Discussion Memoranda on “Capital Reporting” and “The Financial Reporting Entity.”Ethics: TIC addressed the independence issues regarding unpaid fees and financial interest in a condominium or cooperative­type association. TIC also proposed the deletion of ethics rulings regarding firm designation.Other Subjects: The committee informed AICPA staff of problems faced by local practitioners in implementing SAS 39 on audit sampling. It requested additional guidance in the use and acceptance of financial statements prepared with Other Comprehensive Bases of Accounting, and it provided input for expediting the production and maintenance of audit and accounting guides.The exposure process is designed to generate comment on standards develop­ment from a wide audience of firms and organizations. TIC plays an essential role for local firms in this process. We continue to be encouraged by the positive results of our recommendations.Professional/Future IssuesGoal—To ensure that PCPS anticipates and addresses issues of concern to local practi­tioners and continues to work to broaden its scope of services to members.A client of a PCPS member firm pointed out that a draft loan agreement it was asked to sign specified that its audit be performed by a national firm. Discriminatory loan clauses like this trouble many of our member firms and can disrupt longstanding client relationships. In response, PCPS plans to write letters to the editors of more than a dozen national banking, insurance and legal journals, and will contact regional banking and business publications with copies of the AICPA Board resolution decrying this practice. Our letters will urge the publications to alert their readers to local firm discrimination.A recent professional report suggests smaller firms may be able to enter a new area of practice by acting as the internal auditor for public companies. The “Treadway Report on Fraudulent Financial Reporting” recom­mends that all SEC registrants have an established internal audit function. Based on a strong response to an Advocate article on this opportunity, PCPS has urged the AICPA Continuing Professional Education Division to develop training materials on internal auditing for CPAs in public practice.PCPS also shared its views with the Specialization Accreditation Board about accredited functional and industry specialties and their impact on local firms. The Section recommended that the Board abandon its efforts to designate industry specialties, as these raise competitive difficulties for practi­tioners in smaller firms who may not be able to spare the time or resources necessary to obtain formal accreditation in each of the industries they serve.In July, AICPA President Phil Chenok asked PCPS to assume responsibility for the Institute’s ongoing activities related to small business. Next year, PCPS will work on the Journal of Accountancy’s Small Business issue, help promote Small Business Week and other SBA activities and review CPE programs available to members in small business. PCPS also met with representatives of the AICPA Committee on Governance and Structure and recommended that it strengthen the AICPA’s commitment to small and local CPA firms by retaining the current name and structure of the PCPS and broadening its advocacy responsibilities.CommunicationsGoal—To communicate effectively with members and external audiences about PCPS activities, encouraging productive dialogue whenever possible.This summer, PCPS performed a mail survey of member firms that joined the Section before the passage of the Plan to Restruc­ture. More than half of all recipients re­sponded to the survey and many wrote detailed comments. Their views and opinions3December 1989will help PCPS committees shape the future direction of the Section and its activities. For example, three out of four of the firms in the ten-and-under size category would like to participate in TEAM meetings. The survey also revealed that 93% of the respondents find peer review “very” or “moderately” useful, and more than 65% say the same for the Section’s advocacy role and the expanded PCPS Advocate.As part of an ongoing program, PCPS Executive Committee members submitted articles to state society newsletters on subjects that might benefit PCPS members, such as the consulting review program. PCPS also wrote speeches about the importance of the Section and its role in the profession which members can use to address either CPA audiences or non-CPA audiences. Copies are available by contacting the PCPS office.The PCPS Advocate this year increased its frequency and scope. The bi-monthly newsletter now includes interviews with members, case studies of peer review experiences, practice management techniques and marketing ideas. In May, all member firms received a catalog of PCPS practice development materials available through Newkirk Publications.Firms that joined the Section during 1988-89 received a special “new member kit,” includ­ing a complete set of information about the Section and its activities. PCPS also continued its outreach effort to nonmember firms and created a new membership infor­mation packet which is sent in response to phone and mail inquiries.MembershipGoal—To maintain and increase membership in PCPS.Membership in the PCPS tripled in the past two years, and has never been higher. About 5,700 firms across the country are now members of the Section and actively support its programs. And, as our ranks grow, so does our influence. PCPS member firms now employ a large majority of the AICPA members in public practice.The increase in our membership has come primarily from smaller practice units in the profession. Currently, 46% of member firms have one owner and 43% have two to five partners. More than three-quarters operate out of one office. New members that have joined in the past two years say that they expect to benefit the most from “improved quality control,” “exchange of knowledge from other firms,” “practice development support” and “increased prestige,” in that order.PCPS Membership(January-July)pcps AdvocateAmerican Institute of CPAs 1211 Avenue of the Americas New York, N.Y 10036-8775NON-PROFIT ORGANIZATIONU.S. POSTAGE PAID American Institute of Certified Public Accountants

PCPS Advocate, Volume10, Number 6, December 1989; Annual Report, 1988-89

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PCPS Advocate, Volume10, Number 6, December 1989; Annual Report, 1988-89

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