Attestation Update – A&A for CPAs

Technical stuff for CPAs providing attestation services

California Board of Accountancy is serious about audit quality and enrollment in peer review.

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The Winter 2017 Update newsletter (#83) from the California Board of Accountancy shows that the board is continuing its active efforts on disciplinary actions.

There are obviously quite a few of our colleagues who are not performing up to standards.

I’ve heard stories from a distance that the Board has hired more enforcement staff. As I have read the last few issues of Update, it sure seems to me that the increased staffing is showing up in an increased pace of closed cases. Maybe my perception is off, but it seems there are more cases closed with more serious consequences in the last year or so.

I count 39 cases documented in this edition of Update. Only 2 of these have discipline level of suspension or less. All the others are surrenders, revocations, or stayed revocations. Just as a guess, I think that means the editor of Update is filtering out most of the suspensions.

I count 19 cases of those 39 with peer review problems or audit, review, or compilation failures or some combination thereof. I’ll break that down further:

I count 15 disciplinary actions with peer review problems, usually not being enrolled in peer review while performing attestation work. Almost all of these also have an audit failure or compilation failure. One had a review failure. The discipline breaks out as:

  • 5 – surrendered licenses.
  • 1 – revocation.
  • 9 – revocation stayed, with probation – I think that means if the individual gets in trouble again, the CBA can just issue an order to revoke the license.

There are 4 firms that got in trouble but were enrolled in the peer review program. Discipline and cause of trouble included:

  • 2 – stayed revocation due to audit failure.
  • 2 – stayed revocation due to compilation failure – yes, these firms messed up at the comp level so bad their license was revoked with the revocation stayed.

Many of the firms with stayed revocations had a requirement in their disciplinary action that they are banned from any attestation work during the three-year probation. After probation is over they are banned from all attestation work until they successfully petition the CBA for permission to resume attestation work.

Here is a summary of just two disciplinary actions:

  • Firm had license revoked with revocation stayed, three-year probation, $4,390 cost reimbursement, $2,500 administrative penalty, 22 hours of additional CPE, must enroll in peer review and must submit the resulting report to CBA, if any attestation work is performed then all of it is subject to review by CBA at the board’s discretion.
  • Firm had license revoked with stay, three-year probation, $9,115 cost reimbursement, with ban on all attestation work during probation and must get permission from CBA to do any attestation work after end of probation.  Oh, this firm was sanctioned by PCAOB for audit quality issues and was not enrolled in the peer review program. Yes, the firm was doing work subject to PCAOB oversight and was not getting peer reviews.

A word to the wise:  If you get a nasty letter from CBA, you are best off to deal with it. Take your lumps, pay the fees, get more CPE, and rebuild your firm. It seems to me there is a pattern of firms that ignore CBA letters or give, um, ah, untruthful comments to investigators winding up with worse consequences. Firms that argue and quibble with CBA or change their story a few times seem to run up bigger cost reimbursements.

A word to the unwise: make sure you are in the peer review program if you perform any attestation work. If you are still trying to fly under the radar you will likely be caught so you might want to move quickly.

Written by Jim Ulvog

September 19, 2017, 7:28 am at 7:28 am

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