Knowledgeable Bookkeepers are a Must
Being an auditor, it seems obvious to me that a strong bookkeeper is a necessity for a company. However, more frequently than not, I’ve seen development-stage entities that are newly-public or on their way to becoming public that do not stress the importance of the accounting function as much as they should. As part of an audit, an auditor is required to evaluate the operating effectiveness of a company’s internal controls. This involves discussions with management and employees, walkthrough procedures, and transaction testing. This also includes reviewing the competence of a company’s personnel within the accounting function. Should we discover that certain employees within this function encounter significant difficulty with complex, or even simple, accounting tasks, it could result in our identification of internal control deficiencies. In my previous experience, I have notified audit committees, repeatedly, about deficiencies in their internal control caused by lack of sufficient accounting knowledge. Depending on the pervasiveness of these deficiencies, a public company may be required to disclose a material weakness in internal control over financial reporting in its annual filing pursuant to the rules established by the Sarbanes-Oxley Act. A material weakness is a control deficiency with a large enough magnitude for an auditor to determine that material misstatements, whether due to error or fraud, will not be prevented, detected or corrected. This is not something a company would typically want to disclose to potential investors, further driving the point that competent bookkeepers are a must. Secondly, retaining bookkeepers that have difficulty understanding the intricacies of various accounting topics may yield significantly more amounts of time spent by auditors attempting to figure out what, exactly, occurred during the year. It results in exponentially more questions asked on our end, as well as significantly increased amounts of work. Typically, our fees are based on an expected amount of time it will take to complete an engagement. Bookkeepers that are not competent in accounting are not normally budgeted for. That being said, once a firm begins to exceed what was initially budgeted, additional fees based on unexpected additional hours spent, may be incurred. With this in mind, I would strongly recommend a company hire a CPA to, at very least, oversee the bookkeeping function, if not handle it completely. The ideal candidate would be a CPA that has experience in a specific company’s industry or with the types of transactions that a company regularly enters into. For example, this could be stock transactions, complex financial instruments (including warrants, options, and convertible instruments), internally developed software, or intangibles. As certified public accountants, we are trained to deal with ever-changing, complex accounting transactions in a variety of industries. The FASB and PCAOB are regularly creating new, or revising old, accounting standards. This requires someone who knows how to accurately interpret these standards in order to properly implement them as they become effective. Speaking from experience, my firm is always on the cutting edge of new accounting pronouncements. We are consistently researching new topics and training peers to ensure we can provide the absolute best service to our clients.