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Talk it over: open discourse between internal CPAs and external auditors is critical.

No matter how understanding internal CPAs are, tension is created when company shareholders or other interested parties hire an external auditor to provide an opinion of the internal CPA's work.

Knowing and preparing for this tension will allow interaction with the auditor to function smoothly.


While internal CPAs are dedicated resources within an entity, auditors have many clients, each requiring separate time commitments. Consequently, auditors are not always available to discuss accounting decisions. This is understandable given that an auditor's business is generally built upon pre-determined time commitments to the client rather than on-demand assistance.

But because speed is often a vital ingredient to transaction flow, conflict can arise if auditors are unavailable.

Companies rely upon internal CPAs to provide them with the best accounting advice possible. But there always will be a gap between the internal CPA's confidence in a decision and the 100 percent assurance needed because the accounting will require an opinion from the auditor.

This external involvement for a seemingly internal decision can be difficult to swallow for internal CPAs. If the workflow is slowed because of the auditor, the pressure on the internal CPA mounts. This can lead to the awkward question to the auditor, "Why don't we have you do our accounting rather than waste time on this ourselves?"

This creates a multi-layered conflict between management and internal CPAs, and between internal CPAs and auditors.


CPE and attention to current events may keep internal CPAs aware of accounting guidance, but they can't substitute for the resources of external auditors. The speed of accounting trends and breadth of accounting areas eligible for change make this a critical service from the auditor--and another source of conflict.

Internal CPAs may be applying accounting guidance that, to their surprise, becomes obsolete. Even more difficult for internal CPAs and auditors are those situations when executive management is frustrated by the revision of generally accepted accounting principles or when management, during business negotiations, unknowingly applies the accounting rules of a different industry.

Many software companies faced this predicament a few years back as revenue rules continuously changed. The challenge for an internal CPA was navigating the latest GAAP, while responding to customer negotiations, particularly when the last thing on the minds of customers is the vendor's revenue recognition constraints.

If communication lines between internal CPAs and external auditors are filled with static, this may generate conflict.


Internal CPAs rely upon auditors' knowledge of current GAAP in the accounting decision-making process. While this is one of the most interesting aspects of an auditor's interaction with the client, it is also ripe for conflict.

This can be an uncomfortable role for auditors because they are not responsible for financial statements. Also, if auditors become too involved in this capacity, companies can become paralyzed in their decision making as they continuously consult the auditors' opinion.

The reason for conflict here is that internal CPAs are expected to be constructive in examining accounting answers to find the best possible option, while auditors opine on the accounting answer that results from a particular decision.

This creates a situation where auditors can be hesitant to make that interpretation. Hesitancy accelerates the conflict for reasons already noted--speed is critical to closing transactions.



For internal CPAs, being proactive with auditors helps achieve harmony, leading to a better chance that the auditors will be available, decisive and productive.

Internal CPAs don't want to hear auditors say, "If you would have asked me before you (fill in the blank), this transaction could have been structured to avoid the (fill in the blank)."

The blanks can be any event. For example, "If you would have asked me before you offered the customer an acceptance right, this transaction could have been structured to avoid revenue deferral."

A better discussion would be: "The customer wants an acceptance right, what are the revenue pitfalls?"

Auditor: "The acceptance right will cause revenue to be deferred. I suggest you remind the customer of the protection under the warranty clause if the software doesn't work."

Here are a few other tactics for getting past some of the above hurdles:

* Ask your auditor for their preferred mode of communication. If your auditor is busy, is e-mail more likely to be responded to than a phone call?

* Ask for recommendations on the areas in which you, as the internal auditor, should focus your CPE efforts.

* Turn to other expert resources, such as CalCPA's A&A Answerline, (800) 922-5272.


Greg Regan, CPA is a manager in the forensics practice of San Francisco-based Hemming Morse Inc. You can reach him at
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Author:Regan, Greg
Publication:California CPA
Geographic Code:1USA
Date:Dec 1, 2004
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