Attestation Update – A&A for CPAs

Technical stuff for CPAs providing attestation services

Summary of disciplinary actions from California Board of Accountancy, Winter 2018

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What you will be doing if you ignore professional standards and then get caught messing up your audits and reviews, although the amount won’t be quite as large. Image courtesy of Adobe Stock.

The new Update newsletter from the California Board of Accountancy goes back to providing details on disciplinary actions. The Winter 2018 edition (#86) takes 20 pages to describe the 24 actions. The previous Update provided far less detail, which generated lots of feedback to the board, so the newsletter will again give the ugly details for the causes for discipline.

Three things jump out at me from the current list of discipline.

First, every action comes with a substantial financial penalty in the form of reimbursing the CBA for their investigative costs.

Second, just about every CPA that got in trouble for audit or review problems was given a ban from performing attestation work until some time in the future when the firm requests and receives permission from CBA to again perform such work.

Third, several CPAs received a suspension from their CPA practice. This means the individual may not perform any actions which would otherwise require a license. I think that means the firm halts all their attestation work and unless also holding an enrolled agent credential ceases their tax compliance work.

Here is my summary of the causes of discipline for the license surrenders and the stayed revocations:

surrender license:
2 trustee/fiduciary failure
1 attorney disbarred & sanctioned by IRS
3 total surrendered
.
revocation stayed, 3 year probation
    other:
1 misdemeanor DUI; also caused injury in collision which earned a felony conviction
1 tax fail
1 tax & fiduciary fail, privacy fail, misappropriation, and not in peer review program (yes, that is all for one firm)
3 subtotal stayed revocations for other causes
.
    sanctions for public company work:
3 PCAOB sanctions
2 SEC sanctions; CBA banned firm from attestation work
2 SEC sanctions; one with 45 day suspension imposed by CBA, one with 180 day suspension from CBA
7 subtotal stayed revocations for public company work
.
    attestation issues:
5 audit fail
1 audit fail; didn’t report EBP audit to CBA
2 EBP audit fail
1 didn’t get peer review when performing EBP audit
2 review fail, didn’t get peer review
11 subtotal stayed revocations for attestation issue
 

21

 

total revocation stayed with probation

.
24 total cases listed

 

Reimbursement of investigation costs

The three who surrendered licenses will have to pay reimbursement of investigative costs before the CBA will reinstate the licenses. Costs for the three are $12,000, $16,677, or $18,418.

For the licensees with stayed revocations, the required reimbursements range from a low of $2,139 to high of $15,026. I calculate reimbursements totaling $116,372, which is an average of $5,541.

I’m not going to double-check, but my recollection is that in the past not every CPA was required to reimburse the board for investigative costs. I think that is something new.

 

Additional CPE

Additional CPE classes are required as follows:

12 6 hours
5 30 hours
1 46, yes, 46 additional hours
18 firms with additional CPE requirements

 

Ban on attestation work

Just about all the individuals/firms with audit or review problems have a ban on attestation work.  Permission must be received from CBA before those licensees may resume any attestation work.  Only 1 of the 11 stayed revocations for audit/review issues did not get an attestation ban. I’m assuming the firms with PCAOB discipline probably received some restrictions, but I haven’t checked on that.

Here is my tally of practice restrictions imposed by CBA:

restriction no add’l restrictions on scope of practice
3 PCAOB  sanctions
2 SEC sanctions; also attestation ban from CBA
2 SEC sanctions; one with 45 day suspension, one with 180 day suspension
9 attestation ban for attestation issues
1 firm allowed to perform attestation after setting up practice monitoring program
1 stayed revocation for audit issue but no add’l practice restriction
14 4 total

 

Age of complaints

The indexing of complaints is four digits for the year and two digits, which appear to be consecutive numbering for the year. The highest complaints in this Update newsletter are 2015-85, 2016-97, and 2017-97. The age of the audits and issues addressed can’t quite be determined because the published information only sometimes mentions the dates.

However, the age of underlying issues stretches back a couple of years or perhaps 5 years before the complaint. One CPA is cited for audit failures over a five-year period. Obviously the old adage about justice grinding slowly applies to discipline imposed by CBA.

Here is my tally of the complaints by year:

1 2015
5 2016
14 2017
3 2018
23 total (I obviously missed one, but am not going to do a recount)

 

The effective dates of the decisions are in December 2017 and February 2018, although I didn’t do an exact tally.

 

Conclusion

Oh yeah, in addition to those cost reimbursements and extra CPE hours and not providing any attestation services until some unspecified future date, don’t forget the additional consequences of malpractice insurance carriers increasing rates for insurance.

Also, the disciplinary actions and accusations are public documents. Potential clients and current clients (along with your competitors) will be able to see those actions for, oh, forever.

The lesson?

DO. GOOD. WORK.

Written by Jim Ulvog

August 6, 2018, 6:41 am at 6:41 am

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