audit failure

CPA sanctioned by California Attorney General over audit of charity

2 Comments / Accounting, Audits /
Image courtesy of Adobe Stock.

The California AG negotiated a settlement with a charity for their alleged overvaluation of medical GIK. I say alleged because the charity, three present or former board members, the charity’s insurance company, and the external auditor all deny in the settlement they did anything wrong.

The alleged scheme, according to the AG, was the charity used two other charities, which it formed, to buy medicine in the Netherlands and then donate it back to the ‘parent’, which then recognized GIK at US prices.

The AG asserts that over the course of 25 or more transactions, the purchase of about $225,000 of medicine by the two controlled charities generated gift-in-kind revenue of about $34,900,000 in the sanctioned charity.

Of note for readers of this blog is that the CPA providing an external audit was sanctioned as part of the negotiated settlement. She audited the charity and signed its 990s. She also audited one of the controlled charities and signed their 990s.

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CPA sanctioned by California Attorney General over audit of charityRead More »

CPA sanctioned by California Attorney General over audit of charity Read More »

More disciplinary actions from California Board of Accountancy

Leave a Comment / Audits, Compilations & reviews, Peer Review /
Image courtesy of Adobe Stock.

The Update #87 newsletter from California Board of Accountancy for Summer/Fall 2018 lists 38 disciplinary actions, by my count.

You can read my previous posts on CBA actions by clicking on this tag.

Here is my tally of license revocations, surrendered licenses, and revocations with stay (there are no suspensions or stayed suspensions this time around):

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More disciplinary actions from California Board of AccountancyRead More »

More disciplinary actions from California Board of Accountancy Read More »

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

Leave a Comment / Audits, Compilations & reviews, Peer Review /
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.

Update 11/30/18:  Thanks to CBA for listing the messy details on what CPAs are doing to earn their consequences.

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:

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Summary of disciplinary actions from California Board of Accountancy, Winter 2018Read More »

Summary of disciplinary actions from California Board of Accountancy, Winter 2018 Read More »

Another round of disciplinary actions from California Board of Accountancy

Leave a Comment / Audits, Compilations & reviews /
The firms that make up the following list were not traveling on the above highway. Image courtesy of Adobe Stock.

Starting with the newest Update report for Fall 2017 (#85), the California Board of Accountancy has stopped listing the underlying problem leading to disciplinary action. This means it only took 16 pages to list the 44 actions reported currently. It also seems the CBA is listing actions against firms and the practitioner together.

This means the cringe inducing details are not immediately visible, even though the full disciplinary reports are public records and publicly available. I didn’t bother to take the time to research the reports.

I have tallied the current batch of discipline cases. Underlying problem is inferred by me based on the comments in the newsletter. I haven’t looked up any of the cases or looked up the reg sections cited for discipline. So, with those caveats, here are my inferences of the current disciplinary actions:

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Another round of disciplinary actions from California Board of AccountancyRead More »

Another round of disciplinary actions from California Board of Accountancy Read More »

Common deficiencies in audit engagements

Leave a Comment / Audits /
Image courtesy of Adobe Stock.

Let’s look at an eight point list of common deficiencies in audits for a quick check of the quality of our engagements. Often times those lists of common deficiencies run for pages and pages, essentially covering just about every major component of an audit. Those kinds of run-on lists don’t really help.

The AICPA’s Audit Risk Alert – General Accounting and Auditing Developments – 2017/18 provides a usable list of eight most common deficiencies identified in the recent peer reviews. Pondering this list provides a good way to do a self-check of your engagements.

Here is my paraphrase of the eight points:

Incorrect dating of the auditor’s report. The report date needs to match the release date which should be after the date all the documentation has been reviewed, the financial statements been prepared, and management has taken responsibility for the financial statements. The risk alert refers to AU-C 700.41.

Inadequate documentation of sampling methodology. AU-C 530 explains how to perform a sample. The methodology must be documented or the reviewer won’t be able to understand why the audit evidence is sufficient.

Insufficient audit documentation. …

Common deficiencies in audit engagementsRead More »

Common deficiencies in audit engagements Read More »

Lots more disciplinary actions from California Board of Accountancy

Leave a Comment / Audits, Peer Review /
Image courtesy of Adobe Stock.

It takes thirty-two pages to describe the current round of disciplinary actions from the California Board of Accountancy in the Spring/Summer 2017 edition of the Update newsletter (Issue #84). By my count there are 38 actions, exclude one situation where a firm and the CPA are listed separately.

The overwhelming portion of cases are for CPAs who have an audit or review or compilation failure. Most of those firms also have a peer review problem, either not getting a peer review, failing two consecutive reviews, or getting a very late review.

Just in case you were wondering whether CPAs are regular people with the same, um, foibles as the general population, there were 7 CPAs disciplined for conviction of a crime.

I tallied the results for this edition of Update and came up with these results:

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Lots more disciplinary actions from California Board of AccountancyRead More »

Lots more disciplinary actions from California Board of Accountancy Read More »

A Halloween costume that would make any CPA pass out from fright – an auditor performing one pension plan audit

Leave a Comment / Audits /
Photo courtesy of DollarPhotoClub.com
Photo courtesy of DollarPhotoClub.com

Amid the cute little kids in their funny costumes, this pleasant Halloween night there was a grown man in a suit at the door asking for candy. White shirt, red tie, gray pinstripe.

Not so scary, thought I.

(Tale of this particular night was originally posted on October 31, 2013.)

“What are you dressed up as?”

“An auditor,” came the reply.

That’s not frightening, since I’ve been an auditor for a long time. But it did explain the standard issue uniform.

So, putting on my peer reviewer hat, I asked, “what audit work do you do?”

“Oh, only one pension plan….

.

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A Halloween costume that would make any CPA pass out from fright – an auditor performing one pension plan audit Read More »

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

Leave a Comment / Audits, Compilations & reviews, Peer Review /
Image courtesy of Adobe Stock.

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:

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

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

If you have been blowing off Peer Review, you really ought to get with the program.

1 Comment / Peer Review /
Image courtesy of DollarPhotoClub.com
Image courtesy of DollarPhotoClub.com

Seriously, if you are providing audit, review, or compilation services to your clients, you really need to be in the peer review program. And you really, really need to be doing fairly good work. I doubt any CPAs in California who desperately need to read this post will be doing so, but it is still worth mentioning.

The California Board of Accountancy is coming down hard on CPAs who have avoided the peer review program. Seriously missing the boat on audit quality is getting hammered as well.

Quarterly newsletter

The Spring/Summer 2016 edition of the quarterly Update newsletter from CBA, issue 81, has several reports of firms drawing serious sanctions. There are 21 pages of narrative describing the sanctions through April 24, 2016. Of 28 disciplinary issues, 7 deal with peer review, which are the ones I will highlight.

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If you have been blowing off Peer Review, you really ought to get with the program.Read More »

If you have been blowing off Peer Review, you really ought to get with the program. Read More »

Audit of Parmalat’s fraud based on faked bank deposit settled by Grant Thornton for $4.4 million

1 Comment / Audits /
The amount will be $4,400,000. Image courtesy of DollarPhotoClub.com
The amount will be $4,400,000. Image courtesy of DollarPhotoClub.com

Chicago Business reports on 10/30 that Grant Thornton settles lawsuit for $4.4 million.  Another quick survey:  Reuters – 11/2 – Parmalat settles dispute with Grant Thornton.

If I got it straight, the international consortium of Grant Thornton is writing the check to settle up for the fiasco on the Parmalat audit.

You may vaguely recall that mess.  In two sentences, Parmalat had a fake bank account in the Cayman Islands that supposedly held €3.95B (yes, four billion Euros, that’s 4,000,000,000) which was around half of the consolidated balance sheet of about €8B as of 12/31/03. The auditors in the Italian affiliate (if I recall correctly) of GT sent a confirm to the address the client gave them for the bank in the Caymans which was, of course, intercepted, signed by company staff, and returned to the auditor.

The scheme fell apart and has been rattling around in the legal system for just over a decade, in and out of the US and bouncing between circuits when here.

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Audit of Parmalat’s fraud based on faked bank deposit settled by Grant Thornton for $4.4 millionRead More »

Audit of Parmalat’s fraud based on faked bank deposit settled by Grant Thornton for $4.4 million Read More »

Why you see so much discussion of quality in pension plan audits

Leave a Comment / Audits /
Photo courtesy of DollarPhotoClub.com
Photo courtesy of DollarPhotoClub.com

For some reason, my article two years ago describing A Halloween costume that would make any CPA pass out from fright – an auditor performing one pension plan audit, has been getting extra visits this week.

Check out the post above. It will be funny for accountants.

The joke is based on how frightening the idea is for an auditor to perform one or two pension audits. The risk is astronomical of doing something seriously wrong. Just as frightening is the idea of an accountant only doing one or two audits.

Yesterday, at the Accounting and Auditing Conference presented by CalCPA, I heard the statistics that made the Department of Labor so upset.

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Why you see so much discussion of quality in pension plan auditsRead More »

Why you see so much discussion of quality in pension plan audits Read More »

“The dozy watchdogs” – Deep discussion in The Economist on the state of audit profession

1 Comment / Accounting, Audits, Fraud /

Gotta’ love the drawing of a seated Doberman with a wondering look on his face as he stares at a trail of muddy feline paw prints. Staring around helpless are three other dogs. The befuddled watchdog has a tag labeled “PwC” in case you hadn’t yet caught the point.

The previous drawing was of an overfed cat in a three-piece suit helping himself to a bag of cash from a safe as four dogs snoozed in front of the safe. Said dogs have a tag identifying each as a member of the Big 4.

If you are an auditor, you really should get a fresh cup of coffee and check out The Economist’s discussion of The dozy watchdogs. Will let you see what non-accountants think of the profession (not too much) and the job the big firms are doing (not so great).

Yeah, there is a problem

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“The dozy watchdogs” – Deep discussion in The Economist on the state of audit profession Read More »

More thoughts on the resurrected Andersen brand. Part 3

Leave a Comment / Audits, Pondering /

Here are a few more articles discussing the acquisition of the Andersen brand name by a tax-only accounting firm. My previous articles here and here.

9/8 – re:The Auditors – More on My Reuters Breakingviews Column: The Andersen Tax Name Grab – Francine McKenna brings in more background and other articles on the return of the Andersen brand.

She even quotes the last part of my previous post which said that if a small portion of the worldwide CFOs think the Andersen name denotes quality then there is huge market for the formerly named WTAS firm.

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More thoughts on the resurrected Andersen brand. Part 3Read More »

More thoughts on the resurrected Andersen brand. Part 3 Read More »

Why does PCAOB definition of ‘audit failure’ overstate audit failures? Perhaps because saying ‘audits that should have done better which we found after intentionally looking for audits that might have deficiencies’ doesn’t sound as severe.

Leave a Comment / Audits /

The PCAOB’s self-created definition of audit failures overstates the severity of issues found during inspection, according to a board member of the PCAOB.

Journal of Accountancy reports on 3/21 a PCAOB member suggesting Stop using “audit failure” term in PCAOB reports, Hanson says.

Mr. Jay Hanson says the definition used by the PCAOB is causing confusion about the severity of issues identified during inspections. Here’s the range of definitions of that phrase:

Casual description of PCAOB usage, according to the article:

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Why does PCAOB definition of ‘audit failure’ overstate audit failures? Perhaps because saying ‘audits that should have done better which we found after intentionally looking for audits that might have deficiencies’ doesn’t sound as severe.Read More »

Why does PCAOB definition of ‘audit failure’ overstate audit failures? Perhaps because saying ‘audits that should have done better which we found after intentionally looking for audits that might have deficiencies’ doesn’t sound as severe. Read More »

Why auditing isn’t like reading a history book

Leave a Comment / Audits, Pondering /

Sometimes it’s weird reading a story about the Civil War. It’s the same when reading about an audit fiasco.

People do the oddest things.

As the first major battle of the war shaped up near Manassas Junction, lots of people rode out from DC in their carriages. They brought along picnic baskets so they could eat as they watched the battle. Would be a fun afternoon outing with the children.

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Why auditing isn’t like reading a history book Read More »