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.
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.
Although the enforcement actions are public documents I will only list the initial of the individuals’ last name since the full names don’t add anything to this discussion. If you want the full story or the exact name you can look it up yourself.
The common thread of discipline includes
- stayed revocation of license,
- reimbursement of costs,
- monetary penalty, and
- additional CPE hours.
The revocation comment means the individual’s license was officially revoked. That is a disciplinary action that follows you to the grave. The CPAs involved will always have to advise their insurance carrier of having received official discipline. I don’t know the implications but would guess that has serious repercussions on pricing and whether insurance will even be available.
The stayed comment means the license won’t actually be pulled if the CPA complies with all terms of the disciplinary action and completes probation satisfactorily. Messing up seriously enough during probation means you will have to close your firm and find another line of business.
Consider the following:
A – Revocation of license. No monetary penalties (other than losing his license). Comment indicates this was a default decision, which means the CPA did not object or contest the accusation.
The CPA was not enrolled in the peer review program, did not obtain a peer review when required, and completed an attest engagement after failing to renew his license.
M – Revocation of license, revocation stayed, three years probation. Reimburse CBA $2,500 for investigative costs and pay $2,500 penalty. Banned from providing any attestation services during probation. May not provide any attestation services after end of probation without asking and receiving permission from CBA to do so.
The CPA did not obtain a peer review report.
When he performed an audit of a 401(k) plan, he
… failed to maintain audit documentation as required.
I think that means this CPA is one of those individuals who was performing pension work without being enrolled in the peer review program. To make matters worse, CBA determined one of his audits was deficient.
M – Revocation of license, revocation stayed, three years probation. Reimburse CBA $7,938 for investigative costs and pay $2,500 penalty. Banned from providing any audit services during probation. May not provide any audit services after end of probation without requesting and receiving permission from CBA to do so. May continue providing reviews and compilations.
The CPA did not enroll in the peer review program and did not obtain a peer review on the practice.
The firm’s audit work is criticized from three different directions. It is not clear from the narrative in Update whether this is one engagement or three, but seems to be three different ways to criticize the same engagement. The enforcement action says the CPA performed work
… indicating a lack of competency in the practice of public accountancy…
The action also says
… he issued reports with an unqualified opinion, which was unsupported by audit documentation and which failed to conform to professional standards…
Reading between the lines, that plural comment hints that the issue was for successive years work on the same client.
R – Revocation of license, revocation stayed, three years probation. Reimburse CBA $9,610 for investigative costs and pay $2,500 penalty. Banned from providing any audit services during probation. May not provide any audit services after end of probation without requesting and receiving permission from CBA to do so. Firm is required to go through a peer review.
Firm did not go through a peer review within 18 months of initially providing attestation services.
Aggravating the severity of the case are comments that the CPA did not cooperate with the investigation. I don’t know how to read between the lines on the comment, but getting a failure to cooperate charge included in a disciplinary action indicates there was a serious issue.
R – Revocation of license, revocation stayed, three years probation. Reimburse CBA $11,042 for investigative costs and pay $2,500 penalty. Prohibited from providing any attestation services until firm provides proof that a peer review has been performed and the peer review report has been accepted by the administering entity. During probation the firm must provide quarterly reports to CBA of all attestation engagement which were completed. CBA may select any reports and workpapers they choose and review them as they wish.
The CPA did not participate in the peer review program when required. CPA was also
..making false statements on his renewal application…
claiming he was not subject to A&A requirements. That means he incorrectly asserted he did not have to go through a peer review.
Individual was also disciplined
…for gross negligence and repeated acts of negligence in that they failed to comply with the SSARS in the preparation of six compilation reports…
S – Revocation of license, revocation stayed, three years probation. Reimburse CBA $10,350 for investigative costs and pay $2,500 penalty. Firm is required to enroll in the peer review program and complete a peer review by July 31, 2016. In addition to the 6 extra hours of CPE which is typical for all the other cases, this CPA is also required to complete an extra 16 hours of A&A CPE. Those hours are in addition to what is required for renewal.
The individual and the firm did not renew their licenses and thus continued practicing after their licenses expired. Both individual and firm were disciplined for practicing without a license.
Individual and firm were disciplined for not providing CBA with a copy of a failed peer review report and not advising CBA of having been terminated from the peer review program.
T – Revocation of license, revocation stayed, three years probation. Reimburse CBA $15,000 for investigative costs and pay $2,500 penalty. CPA will develop a plan for an external CPA to monitor the practice. Such plan must be approved by CBA. Firm will go through peer reviews during the course of probation. Additional CPE hours are more significant than the other cases this quarter, including the same 6 as other cases plus 16 hours of A&A CPE for each year of probation. These CPE hours are in addition to the hours required for licensing. That is an extra 54 hours of CPE.
Firm was disciplined for two substandard audits, one of which appears to be a real estate property and the other industry is not clear from the narrative in the action. Discipline is imposed
…for gross negligence in that Respondent performed audits for … (two named entities) … that contained numerous extreme departures from professional standards, including departures from generally accepted auditing standards.
The same comment is repeated but with a citation of
…repeated negligent acts…
I don’t understand the implications or the reasons for doing so, but there are three additional paragraphs making the general point that the audits were substandard, but with subtly different phrasing. Key comments from each paragraph are:
…willfully failing to provide information in audit documentation…
…audit documentation does not support his unqualified opinions…
…willfully failing to comply with professional standards… …. audit documentation does not support his unqualified opinions in the audit…
Firm was disciplined for not complying with peer review requirements. The comments in Update do not specify the nature of the compliance failure. Firm is also disciplined for practicing with a name that was not registered with CBA and practicing without a license.