The Connected Accountant

Red Flags or Red Herring for Accounting Firms?

Barely registering a blip on the radar are imminent identity theft rules that MAY affect accountants and firms.

The Red Flag Rules, coming into effect in less than a month, establish rules designed to aid in the fight against identity theft.  For accountants, this matters if they extend credit to clients.  The act of extending credit makes an entity a 'creditor' under the regulation.  The issue then becomes whether the firm has any 'covered accounts.' These are accounts for which "for which there is a foreseeable risk of identity theft", the FTC helpfully includes small business and sole proprietorship owned accounts in this category.  As that represents a lot of the clients of accounting firms, you may well have an exposure here.

And so, if you have those accounts, you need a program designed to:

1. Identify relevant red flags;
2. Detect red flags;
3. Prevent and mitigate identity theft; and
4. Be updated periodically.

The guidelines for establishing a program are available from the FTC here.

The good news is that there are no criminal penalties for non-compliance - there are possible civil penalties.  Not to mention the PR headache if a client's identity is 'hacked' through your firm.

New Ethics Rules

With the ink barely dry on the last iteration, here come IFAC with some revised independence guidelines - effective 1/1/11.

The full rules are a bit of a grind at 132 pages, but there are some interesting highlights:

The revised codeextends the independence requirements for audits of listed entities to all "public-interest entities."  You will hit page 126 before the definition of a "public interest entity" becomes clear.  In addition to the obvious - quoted companies, the standard will also apply to any entity required to have a similar audit. So, private companies, government departments, charities, etc. might all now be covered by this extension.

The revised code also now precludes audit partners from being evaluated on (or compensated for) selling non-assurance services to their audit clients.

The material that addresses the definition of a network and a network firm for independence purposes appears untouched at this stage.

National institutes (AICPA, CICA, et al) will now have to go through their own consultation and notification process in order to get these revised rules adopted.

Not rocket science, but....

The Proactive Accountant Blog (a part of the UK's Accounting Web) has details on the four steps to take to help clients through a recession.  The genesis for this was a survey that said that 17% of business owners do not expect their business to survive the current downturn. 

So the steps, and, like I said, this is not rocket science, are:

ONE - Proactively start a dialogue with clients about the recession and how to beat it

TWO - Proactively help them to understand the facts about the recession and the facts about what it means for their businesses and their families

THREE - Proactively help them to create action plans for dealing with the implications of these facts for them and their family

FOUR - Proactively help them to implement those plans – and update them in the light of what happens

To which I would add:

FIVE - Provide a flow of benchmarking information on the economy and their industry to allow them to see their progress

SIX - Gently remind them of the progress they have made with your help.  How they have survived and are positioned to thrive