CA Bd of Accountancy

Misbehavin’ CPAs #6. Sanctions by California Board of Accountancy, part 1.

That may be how the vast majority of CPAs perform all the time, but some CPAs miss the target completely. Image courtesy of
That may be how the vast majority of CPAs perform every day, but some CPAs miss the target completely. Image courtesy of

Three times a year the California Board of Accountancy issues a newsletter. It contains a variety of information useful for CPAs. If you are a CPA, you really ought to be reading the newsletter.

That newsletter is also where the board publicizes disciplinary actions against CPAs.

In the last few newsletters I’ve noticed a number of cases where firms are sanctioned for substandard audits. Have also noticed a number of firms sanctioned for not getting a peer review when it was required or fibbing to the board whether they had complied with the peer review standards.

I wanted to understand better what I’ve noticed in passing so decided to dive into the disciplinary reports to get a better picture of the extent of sanctions for audit quality and peer review issues. I looked at the Fall 2014, Winter 2015, Summer 2015, and Fall 2015 newsletters.

That covers 16 months of reporting for disciplinary actions by CBA.

I focused on sanctions for audit issues excluding anything that was a follow-up to PCOAB or SEC sanctions. That rules out quite a few cases.

Also ignored a long list of social misbehavior such as DUIs (several incidents), fabricating Form E (once – fabricating the experience report? – really??), embezzlements, disbarment (once), and other such human foibles. Also excluded a variety of contingency fee violations, breaches of client trust, and sundry tax fiascos.

For context, the Fall 2015 newsletter had 28 disciplinary actions of which 5 were of interest for this little bitty research project. Of those 5 cases, the public notices refer to 2 firms which had substandard audits, 1 had a substandard compilation, and 4 included failures to get a peer review when required of which 2 fibbed to CBA about compliance with the peer review requirement.

Scope and result of my analysis

Reporting restatements to the California Board of Accountancy

If you report on financial statements with a restatement of prior year numbers, you may have to notify the CBA.

The board has a very brief summary of the three circumstances when you have to notify them in the current issue of their newsletter, Update.  You can see the short article on page 10 of this issue.

Here is my really fast summary –