Update #91 newsletter from the California Board of Accountancy, dated Fall 2020, lists 33 disciplinary actions. The effective dates run from May 2020 through August 2020. Yeah, I’m just getting around to writing about the newsletter that arrived last November.
A few general observations before diving into a summary of the causes and levels of discipline.
Of the 10 stayed revocations for attestation failures, all but one had an attestation ban. General pattern is an audit failure will lead to a ban on attest services. The summary of the case does not give an indication why one CPA didn’t draw a ban.
Usually these are bans from performing any audits, reviews, compilations, or attestation engagements. Some of them were just bans from audits. Pattern seems to be the ban is for the duration of probation and then after that a firm may request permission to again perform attest work.
Imagine if you will, that attest work is a significant portion of your work and you cannot perform any of those for three years.
One big firm listed in this edition is PriceWaterhouseCoopers, who drew a stayed suspension with 18 months probation because of discipline by the SEC. They also earned a $300,000 fine and up to $26,000 reimbursement of costs for investigation and monitoring. An additional consequence is distributing a copy of the order to every employee who is in the state of California.
Of the seven disciplinary actions because of enforcement actions by federal agencies, six are from the SEC and one from PCAOB.
The attestation failures usually include three or four or more specific violations. For example, the actions may because there was not appropriate documentation, the opinion was not supported by workpapers, and there were violations of GAAS and violations of GAAP. Those are overlapping issues but a major audit failure will likely cause a violation in all of those areas. Of grim note for two of the attest failures is one of the listed charges includes creating documentation after release of the audit report. You can make your guess as to what an allegation of that nature includes but could have been creating documentation after workpapers had been called in for review.
Here is a tally of the 33 cases:
| Revoke | Surrender | Stay Rev. | Stay Susp. | Suspend | total | |
| Federal agency | 1 | 3 | 2 | 1 | 7 | |
| Crime | 1 | 5 | 6 | |||
| attestation | 3 | 10 | 13 | |||
| dishonesty | 1 | a | 2 | 3 | ||
| other | 2 | 1 | 1 | 4 | ||
| total | 4 | 13 | 13 | 1 | 2 | 33 |
The columns represent:
- license revoked
- license voluntarily surrendered
- license revoked, with revocation stayed
- suspended with suspension stayed
- license suspended for a specified period of time without stay
The “a” footnote for dishonesty in the stayed revocation column is for the two suspensions. Those two CPAs drew a stayed revocation and also earned a suspension. One practitioner received a two month suspension and the other received a six month suspension. That means they may not engage in any activities requiring a CPA license for two months or six months in addition to having a stayed revocation. Particular situations here are for individuals working in industry, not performing attestation work.
Since I do a lot of attestation work I’m curious about the breakout of the attestation failures. I’m sure you are as well. Here is a recap:
| surrender | stayed revocation | total | |
| PR & CPE | 2 | 2 | |
| PR & audit | 2 | 1 | 3 |
| audit | 1 | 4 | 5 |
| A/R/C | 1 | 1 | |
| attest(?) | 1 | 1 | |
| review | 1 | 1 | |
| total | 3 | 10 | 13 |
The categories are:
- PR & CPE – peer review failure and sufficient problem in continuing education to warrant disciplinary action
- PR & audit – firm did not get a peer review and also had an audit failure; summaries of the cases identify all three as pension plan audits
- Audit – audit failure; summary description did not describe nature
- A/R/C – summary indicates firm had problems with two audits, one review, and one compilation
- Attest (?) – summary says there was issue with an attestation engagement but did not specify the level of service
Oh, one of the pension plan audit failures involved problems with seven years of workpapers. Seven.
One audit failure was a repeat from audit failures on the prior peer review.
Summarizing attestation cases by audit, other attest, and other:
| surrender | stay revoke | total | |
| audit | 3 | 6 | 9 |
| other attest | 2 | 2 | |
| other | 2 | 2 | |
| total | 3 | 10 | 13 |
Summarizing the discipline in terms of whether the firms had a peer review failure or not:
| surrender | stay revoke | total | |
| peer review | 2 | 3 | 5 |
| no PR issue | 1 | 7 | 8 |
| total | 3 | 10 | 13 |