Public Company Guidance: How to get your questions on accounting issues Answered
Has your auditor stopped discussing accounting issues with you? Are you hesitant to ask your auditor questions on accounting issues for fear of being identified as having deficiencies in your internal controls? You’re not alone. Here’s the reason for the lack of communication: SOX 404 legislation* prohibits an auditor from reviewing its own work. In the past, auditors were amenable to consulting with you about preparing disclosure documents, applying rules and developing conclusions; they now must back away.
The CPA firm you engaged to perform the audit of the financial statements included in your SEC filing can't legally advise you on specific changes you should make in your accounting systems and controls.
As a result, public companies now need to have the capabilities and resources to prepare financial statements in accordance with U.S. Generally Accepted Accounting Principles (GAAP) without the assistance of their audit firm. This means that public companies must be able to identify accounting issues, research alternatives and reach their own conclusions regarding the proper application of GAAP.
Why Engage an SEC Advisor When You Already Have an Auditor?
• You may need guidance in making accounting decisions and assistance in preparing the documents to support them.
• Your documents will have more credibility and will be more easily accepted by your auditor if an experienced SEC advisor helps you anticipate challenges and develop support for your conclusions.
• It's more cost-effective for middle market companies to outsource reviews of significant transactions than to hire full-time staff for such reviews.
• Your current auditor cannot provide this service because then they would be "auditing their own work."
What Can You Expect From an SEC Advisor?
• High-level transaction reviews.
• Assistance in working with your auditor/navigating through the process of responding to their questions.
• Help collecting and analyzing data and developing an approach.
• Assistance in writing or critiquing position papers.
• Due diligence.
• Stock compensation guidance.
• On-site staff to supplement your resources.
CASE STUDY:
As SEC Advisor, MHM Helps International Software Firm Regain its Footing in the Market
In August 2004, eight months into an investigation by their audit committee, a Southern California software firm contacted MHM for assistance. This NYSE-traded company, with an international clientele, was in trouble. Their Big Four auditor had raised serious questions about their financial statements. In response, the company's audit committee began a wide-ranging special investigation. The questions they raised needed answers. MHM helped the company think through the technical issues and complex transactions, then helped them develop the required accounting methods. We supplied resources to gather information from around the world, guided the company during investigations, and helped create methods for tracking and reporting adjustments. MHM even supplied staff to supplement the company's internal resources. Throughout this process, the company continued to operate in the U.S. and abroad.
Why Choose an Alternative to a Big Four Firm?
• Service: You are the "big client" who gets first-rate responsive service.
• Price: The fee you pay is more in line with what is acceptable for a middle market client.
• Time: Attention is not diverted from your deadline in order to service a bigger client.
Did You Know?**
• 5.6% of accelerated filers reported material weakness in internal control in 2006 vs. 15.4% in 2005.
• Restatements and auditor adjustment continue to be associated with many of the material weaknesses.
• The most common issues are:
- Tax Accounting (38% in 2006)
- Revenue recognition (30% in 2006)
- Inventory/cost of sales (25% in 2006)
Mayer Hoffman McCann’s SEC Services
Mayer Hoffman McCann P.C. is focused on serving mid-sized and emerging growth companies. While MHM serves as the auditor for many public companies, MHM also provides SEC advisory services to clients that currently use other CPA firms for financial statement audits but seek our advice on various technical accounting issues, assistance with the preparation of SEC filings and statements, acquisition audits, special investigations and other needs. We offer the national resources of a Big Four firm, but with the responsiveness you require.
About Mayer Hoffman McCann P.C.
Mayer Hoffman McCann P.C. is a national, independent CPA firm specializing in high quality audit and attest services including financial statement audits, employee benefit plan audits and SAS 70 audits. With 30 locations across the country, our national presence provides our clients with stability and access to extensive resources - all with first-rate responsiveness and personal attention.
In addition MHM provides resources for international services through our membership in Kreston International. With over 400 offices in more than 70 countries, Kreston is ranked among the largest accounting networks in the world. Mayer Hoffman McCann P.C. is registered with the PCAOB and is a member of the AICPA’s Center for Public Company Audit Firms, the Employee Benefit Plan Audit Quality Center and the Governmental Audit Quality Center.