Closing the gap

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Cutting CPA’s role may invite audits Mostly-white
Cost savings may not be worth price of potential employee fraud
              BY MARTIN C. DAKS                            Companies that file with the Securities
                                                                                                           and third parties may be contacted to substan-
                                                                                                           tiate the legitimacy of transactions. The compa-
                                                                                                           ny’s internal control procedures will be careful-
AS MORE BUSINESSES are hurt by the twin
hammers of the weak economy and the tight
credit market, some are talking about trying to
                                                     and Exchange Commission usually need to
                                                     submit audited financial statements, he said,
                                                     and banks also may require an audit for com-
                                                                                                           ly evaluated and tested.
                                                                                                                 Because it is so thorough, an independent
                                                                                                           audit usually is expensive — but it offers the
                                                                                                                                                               field remains
shave their accounting bills, perhaps by moving
down the ladder from getting audited financial
statements to a review or even a compilation,
                                                     mercial borrowers.
                                                           “Back when the economy was hot, some
                                                     banks relaxed their standards and did not
                                                                                                           greatest comfort to banks, investors and others
                                                                                                           making decisions that depend on the audited
                                                                                                           financial statements.
say some certified public accountants.               require audited statements,” Sobel said.                    One step below, and running at about a
      Their reaction: Any short-term savings               “But in today’s environment, that’s pretty      third of the price, is an accountant’s review,                   BY MARTIN C. DAKS
could easily be devoured by the increased expo-      rare. So if a company wants to take on or main-       which primarily consists of inquiry and some        IN 1969, A STUDY in the trade publication
sure to employee fraud and other threats.            tain debt, its lender may require audited finan-      analysis. But a review generally does not involve   Journal of Accountancy noted that black
      “In some cases, a company may have the         cial statements.”                                     an appraisal of internal control or third-party     certified public accountants made up
ability to choose to downgrade” from an audit,             In general, an independent audit calls for      confirmation.                                       about 0.15 percent of the profession.
said Alan D. Sobel, managing member of Sobel         a CPA to judge whether or not a company’s                   In a compilation, which may run half the           And now, 40 years after that study was
& Co. LLC, a Livingston-based accounting firm.       financial statements are presented in accor-          cost of review, an accountant typically takes       announced, only about 2 percent of CPAs in
“But third-party requirements may prevent it         dance with generally accepted accounting prin-        management’s information and puts it togeth-        the United States are black, according to a
from doing so.”                                      ciples. Source documents will be examined,                                ➤➤ See   AUDIT on page 21       2008 survey released by the American Insti-
                                                                                                                                                               tute of Certified Public Accountants.
                                                                                                                                                                    Hispanics make up about 3 percent
                                                                                                                                                               of the profession, while Asians account
Steven J. Dundas

                                                                                                                                                               for roughly 6 percent of the total, the sur-
                                                                                                                                                               vey reported.
                                                                                                                                                                    “At one time, racism and lack of oppor-
                                                                                                                                                               tunity hindered the growth of African-
                                                                                                                                                               American CPAs,” said study author Bert N.
                                                                                                                                                               Mitchell, founder and chairman of Mitchell
                                                                                                                                                               & Titus, which bills itself as the nation’s
                                                                                                                                                               largest minority controlled accounting firm.
                                                                                                                                                                    “Today, there is less organized resist-
                                                                                                                                                               ance, and people are making outreach
                                                                                                                                                               efforts. But we need to offer young people
                                                                                                                                                               more exposure to accounting, and to
                                                                                                                                                               African-American accountants as role
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