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:
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.
There is a six page listing of common deficiencies identified during peer reviews of complexion and review engagements described in the AICPA’s new risk alert Developments in Preparation, compilation, and Review Engagements – 2017/2018.
Here are a few paraphrased highlights of the deficiencies. I will list items that I perceive are more serious or more pervasive.
You might consider reading through the full list and mentally comparing it to how you perform review and compilation engagements to see if there’s something you are missing.
Did you know the AICPA has provided a tool you may use as a starting template to develop a Quality Control document?
If you perform compilations, reviews, or audits, you are required to have a written QC document. Even if you aren’t going through a system review. Even if you only do comps.
If you perform audits and will have to go through a system review, keep in mind you are obligated to have quality control program in place before the system review starts, even before the peer review year begins. That means you really really need to have a QC document in place. (Yes, I’m talking to you, my fellow sole practitioners.)
The AICPA’s template can give you an easy starting point, in case you want to step up your policy.
There are two documents, one tailored for a sole practitioner and the other for small firms. Here are links to the documents:
A ‘virus’ that can infect your quality control system.
How to quickly check if someone is licensed.
Risks of working for the Big 4.
Deep background on the Private Company Council.
2/10 – CPA-Scribo – How Internal Viruses Affect Accounting Firms – No, not the kind of viruses you were thinking. This is caused by staff doing a quick search on the ‘net to find a sample note and pull down an erroneous example, which spreads to most financial statements issued over the next year.
Charles Hall provides a frighteningly real illustration how such a virus could hit a firm.
I am pleased to report my firm passed peer review in 2015.
Peer review is a process CPAs go through to inspect their audit and review work. Experienced CPAs from another firm look at your quality control procedures and read through workpapers for a selection of engagements.
In the current system there are three grades from a peer review inspection:
Pass with deficiency
I am pleased to report my firm received a pass report, the highest level currently available. I have gone through peer reviews in 2015, 2012, 2009, 2006, and 2003. Each time I received the highest grade possible.
Previously mentioned that I looked disciplinary actions reported in the last four newsletters from the California Board of Accountancy (CBA). Want to better understand what happened with firms that got in trouble for audit quality or for not getting a peer review when one was required.
Will continue that discussion by looking at sanctions imposed on smaller firms and then self-imposed trouble generated by some larger firms.
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.
The AICPA has provided a number of new documents to help firms improve the quality control systems and to start looking at the enhancing audit quality initiative. I’ll list a few of them. It’s easy to copy & paste and at a great price.
Tools to develop a quality-control document
Every CPA firm performing assurance services is required to have a quality-control document. That applies even if you only do comps and reviews. Even if you aren’t going through a system review.
The AICPA has free practice tools to explain the QC standards along with a sample document based on the size of the firm.
Clarified section 505, which you can find here, discusses external confirmations. One thing I missed previously is a new requirement to verify the address used on confirmations. I looked in the pre-clarity standards and couldn’t find that requirement there.
Put simply, we as auditors need to make sure confirmations are using good addresses.
For cash, there is a commercial service, Confirmation.com, that can be used to make sure your confirm gets to where you want it to go.