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NT - Footnote disclosures on audited financials


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Sorry in advance for the long post.   This is for my CPA friends on the board.

My day job is controller for a partnership.  I am not a CPA, even though my degree is in accounting.  I keep up "generally" with the FASB and AICPA requirements for financial statements, but only as it pertains to posting transactions to stay in compliance with GAAP (revenue recognition, lease accounting, etc).   Otherwise, I don't really pay much attention to the reporting requirements.   That is what we pay the CPA firm 60K per year to do - right?

So anyways, when I came to work here, the books and records were a mess.   I went through the prior year financials and I found all kinds of errors that the CPA passed on the prior year, though they did mention the items in the management letter.  The 2018 management letter was about 9 pages long.   I came on board late Oct 2019 and by some miracle, I got the balance sheet back in balance and had a pretty solid handle on the Balance Sheet accounts.   The income statement was a little rough as to the accounts used to post the expenses, but the most important ones were pretty well dialed in.  In January 2020 I revamped the entire accounting scheme and reporting, and now I have a pretty solid set of books for the company.   Divisional Accounting, back up schedules for all the balance sheet accounts, proper monthly accruals, labor that ties out to the 941s, Monthly bank recs, daily cash transactional posting, etc.

When we went through the 2019 audit with our CPA firm, they included 4 items in the management letter - 1) SOP's not up to date (OK, that is true, I did not have them at the audit, but I do now) 2) They want separate cash accounts for the various divisions, which ownership will not do 3) They want us to implement purchase orders, which ownership does not want, and 4) The controller does not know how to draft complete financial statements including footnote disclosures.   

Number 4 is correct.   I don't do the footnotes enough (ever!) to be good at it.   I have always had the CPA firm draft them.   We discuss the things they want to know, I give them the info, and ta-da! they show up in my financial statement.  Now the owner wants me to learn how to do the footnotes.   He wants a clean management letter.   I told him that I would need to learn how to do it.   

Is there a "Footnotes for Dummies" book out there that I can get my hands on so that I can write the footnote disclosures for this jerkwad CPA firm?   I need to be an expert by 12/31/20.  Otherwise I will be reduced to copying and pasting the prior year footnotes, changing the dates and crossing my fingers.

Thanks for reading.

Tom
Modesto, CA

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I'm also not a CPA and haven't had to learn footnotes. (My MBA is in finance, but I was only one accounting course short of a double major in accounting. My best instructor told me to major in accounting but to never tell anyone or I'd end up doing all the grunt work!)

I do know that CCH has great textbooks. Also, webinars. And, they purchased CPELink a few years ago, so all the CCH CPELink education now benefits from the CCH inhouse experts/CPAs/lawyers as well as their stable of national speakers/writers.

I would think AICPA would have great resources, too.

Good luck. They are lucky to have you. Compute the CPA firm's hourly amount on their $60K per year ($750/hour?) and apply it to your 2,080 or more annual hours -- and ask for a raise! 

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GAAP, partnership, audited financials.  Knowing the specific industry may also be helpful if there are specific guides for it.

Fwiw, I use only the guides from PPC (Practitioner Publishing Co) through Thomson Reuters. If looking at its products, I'd start with the guide called "Preparing Financial Statements" that goes through each major item on each statement and has a chapter on disclosures that includes summary and comprehensive checklists of required disclosures, either in the statements themselves or in the notes. The appendix to that chapter also has some illustrative notes.  PPC also has a "Trends" volume that I believe is also included with this particular publication that has complete financials submitted by practitioners that includes the notes. The index to that guide allows the user to look up examples of individual notes by subject also.

PPC guides are the only ones I've ever used, and I'm sure other publishers of reference materials will have something along similar lines, including WK/CCH, and the AICPA. 

PPC non-subscription products have a 30-day satisfaction guarantee. Those on recurring subscription have a different cancellation policy.

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3 hours ago, jklcpa said:

Knowing the specific industry may also be helpful if there are specific guides for it.

California Card Rooms.   Gambling and attached restaurant.   Think Casino without the slot machines.

Tom
Modesto, CA

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Don’t quote me on this, the AICPA or our state’s society prohibits non- CPA (licensed) on preparing financial statement to present to third parties and worst prepare notes.  I believe this applies to when compilations and audits are required, I remember in the past sneaky clients would say, can you send the bank our companies financial statements on your letterhead, here is our QB backup, they are already done.

Read this:  https://www.accountingweb.com/aa/standards/new-financial-statement-service-a-gift-to-cpas-and-clients

Maybe they think you are a CPA

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Copy and paste from last year. I bet that's what your CPA firm does. Update dates and amounts as necessary. You only need to write a new note from scratch if something is added or is different from last year.

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5 hours ago, ILLMAS said:

Don’t quote me on this, the AICPA or our state’s society prohibits non- CPA (licensed) on preparing financial statement to present to third parties and worst prepare notes.

Controllers are allowed to compile a set of financial statements for management's internal purposes, and is typically part of the job requirement to do so.

To be clear, the statements Tom asked about are not being issued directly by him to any third parties.  Company management would be handing them over to the company's outside CPA that has been hired to audit them.  The outside CPA firm is the party that is "issuing"  the audit report as part of the complete set of financial statements by doing a lot of work that gives reasonable assurance that the monetary amount and other disclosures fairly represents the position and results of operations of the company and are not materially misleading to the reader.

Except for very large clients, I really wouldn't expect anyone other than the CPA firm, or in-house CPA or CMA, to write the notes to the financial statements, especially with the complexity of today's reporting requirements. Sounds too much like someone is passing the buck here, and yet the CPA firm will still be required to go through its disclosure checklist to verify that everything is adequately disclosed, and if something is missing, they'll still have to address it in communication with management to have it corrected.

Tom, I agree with PapaJoe that you can start with updating from last year.  Basically, that is what the CPA firms do to update from the prior year's statement, and then add or modify as needed.  The problem with the CPA asking you to write them is that the auditing firm expects you to know what disclosures are required, and exactly what information on those subjects must be included, either in the financials themselves or in the notes.

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Everything I send outside of the organization (banks, insurance companies, etc.) is labeled "Unaudited".  I have a good idea of what I am and am not allowed to do in my position in the company.   I don't sign on the bank accounts (especially payroll) because I do our internal audits and bank recs.   I don't make any assurances that the work I have done can be relied upon for credit or lending decisions.   In fact I always state that the financial statements are not to be relied upon for any reason and I reserve the right to revise or correct them as needed without notification.   

Hey, maybe I could be a CPA.  I think this is what the 4 page engagement letter they send me every year says.😇

Tom
Modesto, CA

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Hi Tom -

You're quite lucky - you're getting good help from CPAs who are familiar.  The last time I had the unmitigated nerve to ask a GAAP question, a few outraged CPAs chastised me for entering the realm of public accounting.  You would think I touched the Ark of the Covenant from the old Indiana Jones movie.  But as to be expected, there were also some CPAs who were quite conciliatory.

I'm surprised that an expensive CPA firm would expect the local controller to furnish "Notes."  I'm sure they include "Summary of Significant Accounting Policies" and for a company your size this could be 15 pages or more.  I'm also convinced your owner is not in synch with normal relations between a company and its Attest professional, as their request is not normal.  I'm wondering if this condition is a trend of things to come but I doubt it.  I'm wondering if their position would be different if another CPA were hired - and if a professional standard places a requirement on a successor firm to disclose why the previous firm was disposed.

Judy, Margaret, and others are great help when it comes to resources and particulars, and I am not so I'll shut up.  Good luck Tom, and I see where Fresno St is starting to play again.

 

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