October 17, 2018

discipline

California Board of Accountancy Moves to Stop Incarcerated CPA From Providing Exceptional Client Service in Prison

Well, this lady is definitely going to have to find some other way to barter for honey buns and baby oil, as she won't be providing important financial services to fellow inmates any time soon: The Superior Court of the State of California, County of San Diego, North County Division, has granted the California Board […]

This Guy Cheated on the Open Book Ethics Exam, Ratted Himself Out (UPDATE/CORRECTION)

This article has been updated and corrected. See details below. So here’s the deal. This guy Nathaniel Paredes was disciplined by the California Board of Accountancy, and we get to read all about it in the latest edition of the CBA Update. In case you aren’t aware, the CBA publishes a list of all the […]

SEC Charges Two KPMG Auditors with Something We’re All Accustomed to Auditors Doing

Way back in April 2010, KPMG resigned as the auditor of TierOne Bank. You see, TierOne was in a bit of a mess with its regulator, the Office of Thrift Supervision; the House of Klynveld risk gurus finally had enough, pulled everyone out of there, withdrew their 2008 audit, and told everyone they wouldn't touch […]

KPMG Partner Who Missed $1.9 Billion Error Having No Problem Blaming Others

Apparently it’s auditor punishment Monday. Or Tuesday, if you’re Down Under:

A lead KPMG auditor who only learnt about a $1.9 billion [about USD $1.88 billion] error in his audit of Allco Finance Group through a report in BusinessDay was benched for nine months by the corporate regulator yesterday.


To be completely fair, it sounds like it may have been a tricky audit:

Christopher Whittingham, a KPMG partner, led a core team of 20 audit staff that signed an unqualified audit report on the notoriously complex accounts for Allco for the year ended June 30, 2007.

Or was it?

The error detected by BusinessDay involved the 2007 accounts classifying $1.9 billion in liabilities owed by Allco as non-current, telling investors they fell due more than a year later. The liabilities were, in fact, current liabilities, meaning they were due within the year. The amount of current liabilities is a significant issue for shareholders when considering whether a company can meet its debts when they fall due.

Whatever the case may be, Mr Whittingham shouldn’t sweat it too much:

[T]he Australian Securities and Investments Commission released an enforceable undertaking with Mr Whittingham, which included a nine-month suspension, a $10,000 fine and 10 hours of professional education.

Well, at least he’s taking responsibility for his mistake and isn’t pointing his finger at anyone else or making excuses, right?

Mr Whittingham said he had relied on managers for aspects of the audit, the error had no bearing on Allco’s collapse and he had reissued its accounts the day after he became aware of the error.

Oh.

Regulator suspends senior KPMG auditor [Sydney Morning Herald]

Earlier:
(UPDATE) PCAOB Gives Ernst & Young Manager the Charlie Rangel Treatment

(UPDATE 2) PCAOB Gives Ernst & Young Manager the Charlie Rangel Treatment

~ Update includes statement from Ernst & Young.

~Update 2 includes statement from Claudius Modesti, PCAOB Director of Enforcement and Investigations

Today in obscure accounting oversight board enforcement actions, an Ernst & Young Manager in the Boston office was censured by the PCAOB for repeated violations oy to Cooperate with Inspectors, and Auditing Standard No. 3 (“AS3”), Audit Documentation.


The violations occurred when 27 year-old Jacqueline Higgins “(1) added documents to the working papers without indicating the dates that documents were added to the working papers, the names of the persons preparing the additional documentation, and the reason for adding the documentation months after the documentation completion date; and (2) removed a document from the working
papers after the documentation completion date.”

The timeline goes like this: E&Y was given notice by the PCAOB that an inspection of the unknown company’s audit was being performed on March 30, 2010 and the partner, senior manager and manager on the engagement were given notice on March 31, 2010. The inspection fieldwork was set to begin on April 19, 2010.

On April 5th, the three Ernsters began preparing for the inspection and that’s when problems started cropping up which led to more trouble. The order has the details:

First, Respondent reported to the Engagement Partner and the Senior Manager that a “Review Procedures Memorandum” was missing from the external working papers. The Engagement Partner and the Senior Manager directed Respondent to create and print out the missing document, and to backdate the document to November 30, 2009. The Engagement Partner and the Senior Manager directed Respondent to backdate her sign-off on this working paper to November 30, 2009, and to add this document to the external working papers.

17. Second, Respondent reported to the Engagement Partner that the tie-out of the financial statements contained in the external working papers was performed upon a pre-final set of financial statements. The Engagement Partner directed Respondent to remove this document from the external working papers, and to replace it with a newly created document which tied-out the final financial statements, and which the Engagement Partner directed Respondent to backdate to November 2009.

18. Third, Respondent reported to the Engagement Partner that the Average Forward Foreign Currency Contracts Calculation (“A3a Working Paper”) was missing from the external working papers. The Engagement Partner directed Respondent to gather the missing document, backdate it to November 2009, and add it to the external working papers.

19. Finally, Respondent reported to the Senior Manager that three checklists were missing from the external working papers. The Senior Manager directed Respondent to assemble the missing checklists as a single document (“HH6.8 Working Paper”) and to backdate her sign-off on this working paper to November 2009. The Senior Manager directed Respondent to add the document to the external working papers. The Senior Manager and Respondent reported to the Engagement Partner the facts and circumstances related to the creation of the HH6.8 Working Paper, and the Engagement Partner took no steps to cause the document to be properly dated, or to have it removed from the external working papers.

So those are the wonky details. Where this particular story is most interesting (in our opinion) is that Ms Higgins was, prior to this little mishap, on the fast track. According to the order, she graduated in May of 2005 and started with E&Y in September. She was promoted to senior associate in October of 2007 and then promoted to manager in October of 2009. Now, perhaps she was an audit-savant or perhaps not but in just over four years, she was a manager, which is a much quicker pace than usual.

Granted, she was still under the supervision of the senior manager and partner on the engagement but a young manager nevertheless. Now, you might be asking yourself, “what about the senior manager and partner? Are they getting their wrists slapped?” Conventional wisdom tell us, “absofuckinglutely” but the PCAOB isn’t saying. We were told by a spokesperson that the Board cannot comment on any other action related to this case.

As far as what a censure by the PCAOB actually entails, we were told that “It is an official reprimand from the PCAOB.” Some might call it a wrist slap but we’re damn sure you don’t want that in your file when you’re 27 years old. The action also states that Ms. Higgins was removed from the engagement in July 2010 and “at that time Higgins ceased participating in issuer audit engagements.”

Messages with E&Y spokesperson Charles Perkins and A message left with an attorney for Ms. Higgins were not immediately returned.

Ernst & Young has issued the following statement:

Our firm policy clearly prohibits persons from supplementing audit workpapers in circumstances like those described in the disciplinary order. When we determined that firm policy had been violated, we put the three individuals involved on administrative leave and subsequently separated the partner and senior manager. We have advised the PCAOB of these facts and have cooperated fully with the PCAOB throughout its investigation of this matter.

Based on the above, you might conclude that more disciplinary action will be coming from the PCAOB but like we said, they’re not talking.

UPDATE 2 – circa 3:30 pm: Claudius Modesti, PCAOB Director of Enforcement and Investigations, explained the seemingly light punishment in an email to Going Concern:

As to the censure, under the facts and circumstances, the censure is appropriate given Higgins’ relatively junior position on the audit team and her overall role in the conduct. We also considered the fact that she settled the matter without requiring the Board to commence litigation, which would have been nonpublic as required by the Sarbanes-Oxley Act.”

It was then explained to us that the PCAOB has never explained a disciplinary action in this way: “We also considered the fact that she settled the matter without requiring the Board to commence litigation, which would have been nonpublic as required by the Sarbanes-Oxley Act.”

If that’s not quite clear, consider this: It is significant because, had Ms Higgins acted in the alternative (i.e. not settled), litigation would have been necessary and no one outside of the PCAOB, Higgins, her lawyers and E&Y would have known about the proceedings. Granted, it’s fairly common for lighter disciplinary action to result from a settlement but it also makes sense from a PR perspective (not to mention, transparency and investor protection) if the PCAOB can actually announce that they are taking action against people who break the rules. Part of the challenge the Board has faced is convincing anyone that they have teeth.

It will be interesting now to see if the senior manager and partner follow the same track as Ms. Higgins and how the PCAOB will respond to their cooperation (or lack thereof).

Jacqueline a Higgins CPA[1]