CPA Writing Skills

CCPPAA WWRRIITTIINNGG SSKKIILLLLSS CPA Writing Skills – Financial Question 1 1 © 2007 DeVry/Becker Educational Development Corp. All rights reserved. POINTERS • Where to start? Restate question requirements o Identify format o Select language appropriate for the audience o Answer question directly o Identify technical requirements o Be on the lookout for other unique terms in questions ƒ "Discuss" means give reasons ƒ "Give examples" means give four or five ƒ When considering the effect of transactions or giving examples • Consider impact on all financial statements o Balance Sheet, Income Statement • Affected periods o Current period, Prior period • What to say? Prepare a keyword outline o Organize for coherence o Ensure concise presentation o Ensure ideas are presented clearly o Use standard English o Verify that you have answered the question o Ensure that your response is appropriate for the reader • How to formalize? Write your answer in outline form in short complete sentences • When are you done? Check the compositional accuracy of your response o Spell check your response o Re-read response to ensure you have answered the question • Other pointers o Consider practical effects of good theory o Write a logical statement even if it may appear to be obvious o Avoid absolutes, use words like generally, usually, etc. o Refer to FAS numbers only if you are sure of them o Do not abbreviate • Why do this?? Maximize your points!! CPA Writing Skills – Financial Question 1 2 © 2007 DeVry/Becker Educational Development Corp. All rights reserved. LECTURE QUESTION In a memorandum to a client representative not familiar with accounting and reporting issues, explain the reasons for disclosures of a corporate guarantee of the president's home mortgage obligation even though the president is independently wealthy and likely never to require exercise of the company's obligation. Pointer Application • Restate question requirements o Identify format: o Select language appropriate for the audience: o Answer question directly: o Identify technical requirements: • Be on the lookout for other unique terms in questions: Memorandum Explain professional standards to an individual (or individuals) not familiar with accounting. Persuade your audience that accounting requirements are reasonable and not subject to negotiation. Describe provisions of FAS #5 • Accrual of contingencies if probable • Disclosure of contingencies if possible • Ignore remote contingencies unless: • Guarantees • Obligations such as a line of credit • Debts of others • "Discuss" means give reasons • "Give examples" means give four or five • When considering the effect of transactions or giving examples: • Consider impact on all financial statements: Balance Sheet, Income Statement • Affected periods: Current period, Prior period • Prepare a keyword outline o Organize for coherence. o Ensure concise presentation. o Ensure ideas are presented clearly. o Use standard English. o Verify that you have answered the question. o Ensure that your response is appropriate for the reader. • Keyword outline should map presentation strategy. • Remember less is more. • Ensure appropriate use of professional terms that avoid ambiguity. • Watch out for tense and punctuation. • Re-read the question and your answer to ensure that you have fully responded. • Re-read your answer to ensure the tone is appropriate for the intended reader. CPA Writing Skills – Financial Question 1 3 © 2007 DeVry/Becker Educational Development Corp. All rights reserved. • Write your answer in outline form in short, complete sentences. • Check the compositional accuracy of your response. o Spell check your response. o Re-read response to ensure you have answered the question. • Other pointers o Consider practical effects of good theory. o Write a logical statement even if it may appear to be obvious. o Avoid absolutes. o Refer to FAS number only if you are sure of them. o Do not abbreviate. • Expand your keyword outline to include full sentences. • Click on the spell check button to identify any misspellings. • Consider the impact of materiality and cost benefit. • The examiner's positive grading system gives credit to points presented but none to those assumed. • Use words like generally, usually, etc. • Be very sure! • Wut wks 4 txt msgs w/n wk 4u now! CPA Writing Skills – Financial Question 1 4 © 2007 DeVry/Becker Educational Development Corp. All rights reserved. Response #1: Full Credit To: Client From: CPA Subject: Disclosure of company guarantee of president's mortgage The following memorandum responds to your inquiries regarding our disclosure of your company's guarantee of the president's home mortgage as a contingent liability in the notes to the company's financial statements. While I think we both agree that the president will never need the company to pay his bills, accounting rules require that guarantees by the company of the indebtedness of related parties, like your president, be disclosed to the lenders, investors, and others who might use your financial statements. It is a fair disclosure that will also include your characterization of the potential liability to the company as remote. We don't need to record the guarantee as a liability on your financial statements, but we can't ignore it. I hope this explains and that you understand our position on this issue. Please feel free to contact us if you need further explanation or if you would like to discuss this further. ******** Response #2: Less than full credit To: Client From: CPA Subject: Disclosure of company guarantee of president's mortgage First of all the FASB says that we have to record transactions that are probable, disclose the liabilities that are possible and ignore the stuff that is remote and even though the mortgage is probably remote we have to do it anyway. It's just like an LOC or something like that. You have to disclose it anyway. Call me if you need to know some more. CPA Writing Skills – Financial Question 1 5 © 2007 DeVry/Becker Educational Development Corp. All rights reserved. AICPA Criteria Weakness/Pointer Application • Organize for coherence. • Ensure concise presentation. • Ensure ideas are presented clearly. • Use standard English. • Verify that you have answered the question. • Ensure that your response is appropriate for the reader. • Response does not define the question or logically develop the ideas surrounding this issue for the benefit of an individual with no technical knowledge of accounting. A keyword outline would have been useful to map presentation strategy. • The response is brief! • Professional terms are not adequately defined in a manner that would avoid ambiguity. An individual not versed in accounting would not understand the significance of the FASB or the similarities in accounting treatment between a line of credit and related party guarantee. • The subject line includes a contraction and the first and second paragraphs include undefined acronyms, a form of abbreviation. The first sentence is a run-on. • An individual without an accounting background may be more puzzled than informed after reading the response. • The response uses too much jargon and assumes too much previous knowledge that should be used or assumed with an individual with little or no formal accounting background. CPA Writing Skills – Auditing Question 1 1 © 2007 DeVry/Becker Educational Development Corp. All rights reserved. POINTERS • Where to start? Restate the question requirements. o Identify the appropriate format for your response o Select language appropriate for the audience o Answer the question directly o Identify technical requirements o Be on the lookout for other unique terms in questions. ƒ "Discuss" means give reasons ƒ "Give examples" means give four or five ƒ When determining the effect of transactions or giving examples • Consider the impact on all financial statements o Balance sheet, income statement, etc. • Consider the periods affected o Current period, prior period • What to say? Prepare a keyword outline. o Organize for coherence o Ensure concise presentation o Present ideas clearly o Use standard English o Verify that you have answered the question o Ensure that your response is appropriate for the reader • How to formalize? Write your answer in outline form in short complete sentences. • When you are done Check the compositional accuracy of your response. o Spell check your response o Re-read your response to confirm that you have fully answered the question • Other pointers o Consider the practical effects of good theory o Write a logical statement even if it may appear to be obvious o Avoid absolutes; use words like generally, usually, etc. o Refer to FAS numbers only if you are sure of them o Do not abbreviate • Why do this?? Maximize your points!! CPA Writing Skills – Auditing Question 1 2 © 2007 DeVry/Becker Educational Development Corp. All rights reserved. LECTURE QUESTION You are in charge of the audit of the XYZ Corporation, a start-up firm receiving its first audit. In a memorandum to the file intended for the attention of partners and engagement staff, discuss proposed audit procedures associated with contingent liabilities and the purpose for which they are designed, as well as the relative credibility of those procedures. Pointer Application • Restate question requirements o Identify format. o Select language appropriate for the audience. o Answer the question directly. o Identify technical requirements. • Be on the lookout for other unique terms in questions. Memorandum A high level of technical understanding can be presumed. Provide assurance to a knowledgeable individual that you will comply with professional standards and that you understand their purpose, and remind engagement staff of the specific issues their procedures may disclose. Identify the provisions of FAS #5, create a list of potential procedures, and describe how those procedures would relate to the accounting requirements. • "Discuss" means give reasons. • "Give examples" means give four or five. • When considering the effect of transactions or giving examples: • Consider the impact on all financial statements: Balance sheet, income statement, etc. • Consider the periods affected: Current period, prior period • Prepare a keyword outline. o Organize for coherence. o Ensure concise presentation. o Present ideas clearly. o Use standard English. o Verify that you have answered the question. o Ensure that your response is appropriate for the reader. • The keyword outline should map presentation strategy. • Remember, less is more. • Ensure appropriate use of professional terms that avoid ambiguity. • Watch out for tense and punctuation. • Re-read the question and your answer to ensure that you have fully responded. • Re-read your answer to ensure the tone is appropriate for the intended reader. CPA Writing Skills – Auditing Question 1 3 © 2007 DeVry/Becker Educational Development Corp. All rights reserved. • Write your answer in outline form in short, complete sentences. • Check the compositional accuracy of your response. o Spell check your response. o Re-read your response to ensure that you have answered the question. • Other pointers o Consider the practical effects of good theory. o Write a logical statement even if it may appear to be obvious. o Avoid absolutes. o Refer to FAS numbers only if you are sure of them. o Do not abbreviate. • Expand your keyword outline to include full sentences. • Click on the spell check button to identify any misspellings. • Consider the impact of materiality and cost benefit. • The examiner's positive grading system gives credit to points presented but none to those assumed. • Use words like generally, usually, etc. • Be very sure! • Wut wks 4 txt msgs w/n wk 4u now! CPA Writing Skills – Auditing Question 1 4 © 2007 DeVry/Becker Educational Development Corp. All rights reserved. Response #1: Full Credit To: File From: CPA Subject: Audit Procedures Relative to Contingent Liabilities The following memorandum is intended to describe the procedures we have considered in developing an audit program to detect contingent liabilities that may exist at the XYZ Corporation. We will consider both external and internal sources. Generally, we will consider the information received from external sources to be more reliable than that received from internal sources. We will focus on identifying unrecorded liabilities that are both probable and reasonably determinable, for potential recognition and disclosure in the financial statements. We will also identify undisclosed liabilities that are possible, and even review remote liabilities, for potential disclosure in a manner consistent with Financial Accounting Statement Number 5. EXTERNAL INFORMATION Attorneys' letters We will analyze the legal fees account to identify law firms who have billed XYZ Corporation, and we will send an inquiry to those attorneys with respect to pending or threatened litigation, as well as unasserted claims and assessments. Our procedures are designed to obtain corroboration of information provided by management, as well as to determine the extent to which liabilities should be recorded or disclosed. Bank Confirmations We will independently confirm loan balances through bank confirmations, and will review confirmation responses for evidence of hidden bank loans, discounted drafts, guarantee of notes, and other items that may require recording or disclosure. INTERNAL INFORMATION Review of board minutes Our review of the minutes of the board of directors and shareholders' meeting will be designed to determine if any of the issues discussed require further investigation, disclosure, or recognition. We will specifically look for discussion of unasserted claims, product liability issues, asset dispositions, and the like. Representation letter In accordance with firm standards and generally accepted auditing standards, we will obtain a representation letter to confirm management's representations, to indicate and document the continuing appropriateness of such representations, and to reduce the possibility of misunderstanding concerning the representations. Review interim financial statements We will review interim financial statements after year-end for large fluctuations that might indicate material payments for previously undisclosed liabilities, or losses of sales contracts that might require subsequent event or contingent liability disclosure. Review sales contracts We will discuss sales contracts with the sales manager to determine whether there are any losses in business volume that might require subsequent events disclosure, or whether XYZ Corporation has entered into any agreements at below-market prices that might be indicative of either related party transactions or contingent losses. CPA Writing Skills – Auditing Question 1 5 © 2007 DeVry/Becker Educational Development Corp. All rights reserved. Review purchasing commitments We will discuss long-term purchasing commitments with the purchasing agent to determine whether purchases are executed at fair market value, whether any losses need to be recorded, or whether there are related party transactions requiring disclosure. Review long-term leases Our review of long-term leases will be designed to determine the capital or operating characteristics of the agreement and, consequently, disclosure requirements that may apply (i.e., disclosure or recognition of a liability and/or future minimum lease payments). Review tax return status Our review of the status of tax returns for open years will be designed to determine XYZ Corporation's compliance with tax regulations, or to identify instances of noncompliance or the source of disputes with the Internal Revenue Service. ******** Response #2: Less than full credit To: File From: CPA Subject: Audit Procedures Relative to Contingent Liabilities Contingencies are a very important area to audit and we need to be real careful about them. We are going to perform a lot of procedures, including: 1. Talking to management to find out if there are any contingencies 2. Getting a letter of representation about contingencies 3. Getting a bank confirm 4. Doing the attorney's confirmation about contingencies 5. Seeing if there are any contingencies in the minutes Some of our procedures are required by GAAS, like the representation letter, but this is very important so we will be doing all of them. CPA Writing Skills – Auditing Question 1 6 © 2007 DeVry/Becker Educational Development Corp. All rights reserved. AICPA Criteria Weakness/ Pointer Application • Organize for coherence. • Ensure concise presentation. • Present ideas clearly. • Use standard English. • Verify that you have answered the question. • Ensure that your response is appropriate for the reader. • Response does not define the question or logically develop the ideas surrounding this issue for either audience, the staff or the partner. A keyword outline would have been useful to map presentation strategy. • The response is brief! • Although there is a list of appropriate procedures to audit contingencies, the reasons for the procedures and their application to the client are not developed in any meaningful way. • The language in the memorandum is colloquial and not suitable for professional correspondence. Terms like "real careful" and "doing the attorney's confirmation" should be replaced by more professional language, such as "very careful" and "obtain an attorney's confirmation." In addition, acronyms and abbreviations should not be used, so "GAAS" should be replaced by "generally accepted auditing standards," and "confirm" should be replaced by "confirmation." Ending punctuation marks were also omitted. • The question requires not only a description of procedures but a discussion of why they would be performed. The memo nominally describes the procedures, but does not fully answer why they are being performed other than in the broadest terms. • The response neither displays the depth of understanding that a partner would want to see nor the level of explanation that staff would need to intelligently begin their review. The response does not demonstrate adequate supervision. CPA Writing Skills – Regulation Question 1 1 © 2007 DeVry/Becker Educational Development Corp. All rights reserved. POINTERS • Where to start? Restate the question requirements. o Identify the format. o Select the language appropriate for the audience o Answer the question directly o Identify technical requirements o Be on the lookout for other unique terms in questions ƒ "Discuss" means give reasons ƒ "Give examples" means give four or five ƒ When considering the effect of transacti