Arizona Board of Accountancy Will Not Discipline CPAs Merely for Providing Accounting Services to Medical Marijuana Dispensaries

The Arizona Board of Accountancy issued the following on March 28, 2016:

“The authorized sale of medical marijuana is legal in the State of Arizona and the State of Arizona has mandated that such sale be performed by licensed and regulated medical marijuana dispensaries.  Further, the State of Arizona has mandated that to renew their license such medical marijuana dispensaries must retain a certified public accountant to perform an audit of the financial statements of such entity. The Arizona Board of Accountancy recognizes that while the state of Arizona has a law that legalizes the sale of medical marijuana, the Federal Government does not have such a law. As there is a dichotomy between Federal and Arizona law, the Arizona Board of Accountancy can make no determination of how such a conflict might ultimately affect a medical marijuana dispensary or any of its service providers. Hence, the Arizona Board of Accountancy has concluded that during the contemplation of acceptance of any accounting services engagement for a medical marijuana dispensary, an Arizona registrant should diligently evaluate and address the potential risks and uncertainties associated with providing such services. Registrants should carefully consider the criteria provided in auditing standards and other professional materials, as well as professional guidance specifically related to providing services to the medical marijuana industry.

Further, the Arizona Board of Accountancy has concluded that merely accepting an engagement to provide accounting services to a medical marijuana dispensary does not, on its face, constitute an act discreditable to the profession and it will not pursue independent disciplinary action against an Arizona CPA registrant based solely on such acceptance. The Arizona Board of Accountancy recommends that Arizona registrants considering providing services to the medical marijuana industry read the materials referenced herein, professional standards applicable to the professional services to be provided and guidance offered by State and Federal regulatory bodies, including, but not limited to the Internal Revenue Service, the U.S. Department of Justice and the U.S. Securities Exchange Commission and any other authoritative materials available that frame the issues contemplated herein.”

By |2017-02-04T07:33:05+00:00April 16th, 2016|Dispenary Accounting, Stories & Articles|Comments Off on Arizona Board of Accountancy Will Not Discipline CPAs Merely for Providing Accounting Services to Medical Marijuana Dispensaries

Medical Marijuana Accounting – Navigating the Forest Through the Trees

Draft rules issued by Arizona Department of Health Services contain regulatory requirements over the financial accounting operations of all dispensaries. The draft rules require financial accounting submissions to DHS to be in accordance with Generally Accepted Accounting Principles (GAAP), specifically defined in R17-101 – Definitions. DHS rule R9-17-315 requires an inventory control system and monthly internal audit(s) of the dispensary’s inventory in accordance with GAAP. The draft rules also require an annual financial statement audit in accordance with GAAP and generally accepted auditing standards (GAAS) conducted by an independent Certified Public Accountant. The audit requirements are contained in R9-17-307(3) and (4).

Our goal is to provide general guidance to entities that are anticipating submission of an application and receipt of an Arizona medical marijuana dispensary license. Due to the anticipated changes in rules as a result of the public meetings and comment occurring during February, 2011, the likelihood of additional or amended final rules should be anticipated.

What is a Financial Statement Audit?

The objective of a financial statement audit is to determine whether the financial statements are free of material misstatement. An audit includes examining, on a test basis:

  1. evidence supporting the amounts and disclosures in the financial statements,
  2. assessing the accounting principles used and significant estimates made by management,
  3. evaluating the overall financial statement presentation.

Responsibilities and Functions of the Independent Auditor

The objective of an audit of financial statements by an independent auditor is the expression of an opinion on the fairness with which the following are presented in conformity with generally accepted accounting principles, in all material respects:

  1. the financial position (balance sheet),
  2. results of operations (income statement),
  3. cash flows (cash flow statement).

The auditor’s report is the medium through which they express their opinion or, if circumstances require, disclaim an opinion. In either case, the auditor states whether his audit has been made in accordance with generally accepted auditing standards. These standards require the auditor to state whether, in their opinion, the financial statements are presented in conformity with generally accepted accounting principles and to identify those circumstances in which such principles have not been consistently observed in the preparation of the financial statements of the current period in relation to those of the preceding period.

Distinction Between Responsibilities of Auditor and Management

The auditor has a responsibility to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud. Because of the nature of audit evidence and the characteristics of fraud, the auditor is able to obtain reasonable, but not absolute, assurance that material misstatements are detected. The auditor has no responsibility to plan and perform the audit to obtain reasonable assurance those misstatements, whether caused by error(s) or fraud, that are not material to the financial statements are detected.

The financial statements are management’s responsibility. Management is responsible for:

  1. adopting sound accounting policies,
  2. establishing and maintaining internal control,
  3. initiate, authorize, record, process, and report transactions (as well as events and conditions) consistent with management’s assertions embodied in the financial statements.

The entity’s transactions and the related assets, liabilities, and equity are within the direct knowledge and control of management. The auditor’s knowledge of these matters and internal control is limited to that which is acquired through the audit.

The fair presentation of financial statements in conformity with generally accepted accounting principles is an implicit and integral part of management’s responsibility. The independent auditor may make suggestions about the form or content of the financial statements or draft them, in whole or in part, based on information from management during the performance of the audit. However, the auditor’s responsibility for the financial statements he or she has audited is confined to the expression of his or her opinion on them.

About the Author

Lance Meilech is a Certified Public Accountant practicing with the firm of AddingMachine.com in Phoenix. He has earned a Masters in Taxation. As a licensed professional, he provides a full range of accounting and tax services, including accounting and tax services for Arizona medical marijuana dispensaries. He has more than twenty years experience in all aspects of taxation, accounting and audit, including income tax planning for closely-held businesses and high and middle net worth individuals.  Lance has extensive experience with both federal and state tax audits and collection matters including offers in compromise.  Lance’s clients include executives, attorneys, physicians, real estate professionals, small business and high net worth individuals.

However, neither this article nor the author purport hereby to offer legal, tax or accounting advice in any form. This article is not a comprehensive assessment of issues that might be experienced in a particular business operation. Each reader’s situation is dependent on his/her facts and circumstances. As a result, each reader should consult his or her own advisor for information concerning his or her specific situation or may contact the author at info@addingmachine.com.  Call Lance at 602-943-2060 to schedule a free initial consultation or if you have questions about this article.

By |2011-02-18T07:19:41+00:00February 18th, 2011|Dispenary Accounting|Comments Off on Medical Marijuana Accounting – Navigating the Forest Through the Trees

Medical Marijuana – Fact or Fiction: What “Good” is an Accounting System?

Background

Voters in State of Arizona passed proposition 203, enacting legislation defined as Arizona’s Medical Marijuana Act. The Medical Marijuana Act authorizes the establishment of nonprofit medical marijuana dispensaries (“dispensaries”). These dispensaries are to be licensed, tightly regulated, and inspected and are intended to provide medical marijuana to qualified patients, with their doctor’s approval, or their designated caregivers.

Arizona’s Medical Marijuana Act is governed under Title 36, Public Health and Safety, Chapter 28.1 – Arizona Medical Marijuana Act. Arizona’s Department of Health Services (“DHS”) has enacted “draft” rules governing the program which are contained in Title 9, Health Services, Chapter 17, Department of Health Services – Medical Marijuana Program.

Draft rules issued by DHS contain regulatory requirements over the financial accounting operations of all dispensaries. The draft rules require financial accounting submissions to DHS to be in accordance with Generally Accepted Accounting Principles (GAAP), specifically defined in R17-101 – Definitions. DHS rule R9-17-315 requires an inventory control system and monthly internal audit(s) of the dispensary’s inventory in accordance with GAAP. The draft rules also require annual financial statement audit conducted by an independent Certified Public Accountant. The requirements are contained in R9-17-307(3) and (4).

Our goal is to provide general guidance to entities that are anticipating submission of an application and receipt of an Arizona medical marijuana dispensary license. Due to the anticipated changes in the draft rules as a result of the public meetings and comment occurring during February, 2011, the likelihood of additional or amended final rules should be anticipated.

Small Business Accounting System

Many new small business owners and entrepreneurs consider accounting and bookkeeping, a necessary evil; forced upon them by various federal, state and local governments. In this case, an Arizona Medical Marijuana dispensary’s perpetual existence will be closely related to how well the accounting system provides Arizona’s Department of Health Services the financial accounting information they require.

Accounting is an essential component of business, and evil or not, it is a critical business function that cannot be avoided. Remember, noncompliance with statute and regulation will eventually collapse an entity, with an entity’s officers possibly being subjected to civil fine(s), penalties and forfeitures. The accounting system is how a business tracks assets, liabilities, equity, revenues and expenses as a mechanism to evaluate if the company is financially successful. A well designed accounting system is:

Organized set of computerized and manual accounting methods, procedures, and controls established to gather, record, classify, analyze, summarize, interpret, and present accurate and timely financial data for management decisions.

It is an information system that should be embraced by small business owners and entrepreneurs as a means of providing a “snapshot of the business”, through the production and analysis of periodic and timely prepared financial statements. It’s also one of the most important management decision making tools used in any business.

Accounting System – Practical Considerations (more…)

By |2011-02-18T16:24:02+00:00February 17th, 2011|Dispenary Accounting, Stories & Articles|Comments Off on Medical Marijuana – Fact or Fiction: What “Good” is an Accounting System?
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