Attestation Update – A&A for CPAs

Technical stuff for CPAs providing attestation services

Thinking of doing a little “file cleanup” before an inspection? Think about the consequences too.

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Maybe not such a great idea after all.

An E&Y partner, senior manager, and manager were sanctioned by the PCAOB for some file clean up in advance of an inspection. They backdated four difference pieces of new documentation. They did not identify the documents were added after the documentation completion date.  All three are prohibited for several years from working for a firm registered with PCAOB.  The partner was fined $50,000.

Moral of the story? It’s a really bad idea to lie when you are a CPA. If you’re going to add stuff to the files, document the workpapers correctly, add notations in huge fonts (preferably with blinking neon lights) mentioning that the documentation was added after the audit was done.

Other consequences? In addition to not working for a large CPA firm and the $50k fine?

Tammy Whitehouse mentions in PCAOB Disciplines E&Y Auditors for Altering Audit File, that E&Y fired the partner and senior manager. The manager was put on administrative leave and left shortly thereafter.

In Doctoring Audit Files-Don’t Do It, John Hufnaggle wonders how much each of the three incurred in legal fees. We can form a pool to speculate on the answer with the squares measured in multiples of a year salary. I’ll take the squares for one year salary for the manager, a half-year salary for the senior manager and a quarter-year salary for the partner.

Prof. David Albrecht, in He Holds to a Lower Standard, suggests a good dose of public humiliation is in order for the now former partner.

Well, I don’t know about the public humiliation, but the list of consequences isn’t finished. Three more consequences come to mind:

First, losing that $1M+/yr job or the near-term path to a $1M+ job.

Second, how about anyone on the planet being able to do an Internet search and find out how they destroyed themselves. My guess is that electronic files describing their lack of integrity will be available until their yet-to-be-born grandchildren have retired.

Third, eventually the Massachusetts Board of Accountancy will take note of the PCAOB disciplinary actions. There is a really good chance they will lose their licenses.

Actually, I’m not sure what public humiliation could possibly be added.

Written by Jim Ulvog

August 6, 2011, 9:01 am at 9:01 am

Posted in Audits

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