Here is my tally of license revocations, surrendered licenses, and revocations with stay (there are no suspensions or stayed suspensions this time around):
Three accountants in this story entered the above building innocent and left as a felon. Image courtesy of Adobe Stock.
10/19/20 update: This list is getting cumbersome to update and read. It has been reformatted and posted here. This post will not be updated after today. Check the newer post for all future updates.
Sometimes you gotta’ have a scorecard to keep track of the players and the story. After a former partner pled guilty this week in the fiasco at KPMG over leaking of PCAOB inspection targets, I had to sort out again who was who.
So, I sketched out a list of the players and a bit of info about each.
Will update this list as the criminal cases move forward.
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:
The California Attorney General has taken exception to the valuation of donated medicine by three large charities.
In March 2018 MAP International, Food for the Poor, and Catholic Medical Mission Board were served with cease and desist orders insisting the charities cease using their claims of extremely high program service percentages. The AG also seeks to revoke charitable registration status in the state for MAP and FftP. The cease and desist orders seek to impose substantial fines on the charities.
The AG also claims that FftP incorrectly applied joint cost allocation.
The filed actions alleged that financial reporting for the years 2012 through 2015 is incorrect. This would include the audited financial statements, 990s, and RRF-1s (for MAP and FftP).
Don’t send one of these to CBA unnecessarily. Image courtesy of Adobe Stock.
These must be the preferred ways CPAs pick to get in trouble with the regulators because the board of accountancy says these are the three most common reasons they issue monetary penalties.
What are the three most popular ways to draw a fine from CBA?
Don’t get minimum of 20 hours each year of your license term or don’t get 12 of those hours in technical topics.
Ignore a formal inquiry from CBA.
Don’t submit that Peer Review Reporting Form with your license renewal.
For more detail, check out the following article, quoted with permission, from the California Board of Accountancy. Since it is quoted verbatim, I won’t put quotes around the entire article.
IT’S EASY TO AVOID CBA CITATIONS
To help increase awareness of CBA requirements and prevent licensees from receiving a citation, below are the top three violations that led to a citation in the previous fiscal year. Citations are posted on the CBA website and may include an administrative fine of $100 to $5,000.
The firms that make up the following list were not traveling on the above highway. Image courtesy of Adobe Stock.
Starting with the newest Updatereport 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:
For a summary of the accounting rules released in 2017 and the most significant new rules from 2016, 2015, and 2014, check out A Closer Look: Discussion and Analysis of Current Accounting and Audit Issues.
CCH made this update available for free to people on their mailing list. I received permission from my editor at CCH to make it available on my blog.
Click here to download the 54 page newsletter. CCH does not have a separate landing page for the document, so that link automatically downloads the newsletter. UPDATE: If link didn’t work for you, please try again. I reloaded the link and it is working now.
For each of the accounting rules covered, the newsletter provides:
For a year we have known of a fiasco at KPMG in which the firm obtained a list of PCAOB’s plans for inspecting KPMG audit workpapers. That information was floated around at the senior levels of the firm. Multiple people were fired.
This week, the Department of Justice unsealed indictments against four former KPMG employees and one former PCAOB employee.
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.
You might learn a few things from a list of Forty Mistakes Auditors Make. If you can identify a few ways to improve your audit approach you could save time, improve the quality of your audit, and maybe reduce your risk.
Lots of auditors are in the midst of planning their year-end audits and reviews. Now would be a really good time to think about how to do better, more efficient work.
Writing at CPA Scribo, my friend Charles Hall outlines a number of goofs made by auditors. I’ll list a few tidbits in order to encourage you to read and ponder the whole list:
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:
Image courtesy of Dollar Photo Club before their merger into Adobe Stock.
Here are a few articles to stretch your brain when you are ready for some mental exercise:
Is the double-entry accounting system broken?
What is the recidivism rate for white-collar criminals and how could that affect my audits?
What possible changes are on the horizon for the audit opinion?
5/17/17 – Tom Selling at The Accounting Onion – Double-Entry Accounting and Modern Times – As a real brain stretcher, consider whether our double-entry accounting system is fundamentally broken.
Work with me a minute while I highlight and summarize a few ideas from the article.
A basic concept of double-entry accounting is that debits on the left side of the balance sheet represent all the assets of the entity. This includes all of the resources that are available for the entity to use in order to make money and all the assets against which creditors have a claim.
On the credit side, liabilities represent all of the claims against the organization. The equity section represents the value that belongs to the owners.
Prof. Selling points out there’s a variety of problems with using the statement of financial position as a representation of economic reality.
He points out and then moves past the idea that not all debits are assets and not all credits are liabilities. That’s easy to understand.
More significantly is that not all assets are reflected as debits and not all liabilities are reflected as credits.
Here are a few of the comments from the May 24, 2017 Not-for-profit conference presented by California Society of CPAs that I thought would be of interest to others in the nonprofit community. Since all comments are the opinion of the speaker, neither their name nor organization will be mentioned. The ideas mentioned can stand or fall on their own.
This is the first of two posts. The next discussion will address changes in financial statement presentation outlined in ASU 2016-14. In this post: tax, revenue recognition, and single audit.
It might just be possible that filing a form 1023 or 1023-EZ is so easy that people can get exempt status for an organization without knowing the requirements to properly operate a charity and maintain exempt status. In examinations to follow-up on exempt status, the IRS is finding a lot of charities are out of compliance.
One of several focuses of the IRS is filing of FBARs, those forms used to report overseas bank accounts. One ripple effect of chasing money laundering is the impact on charities who have overseas accounts. Even though there is minimal risk of those accounts being used for tax evasion the FBAR filing requirement still apply. As a reminder, the deadline for filing FBARs is now April 15 with a six-month extension available.
