Increasing Audit Profits Series No. 4--Taking the Easy Way: Deciding on Integrity
You may be surprised this blog is addressing integrity as a way to increase audit profits, let alone discussing it at all!. After all, abiding by the AICPA’s Code of Professional Conduct is just a compliance function isn’t it? We CPAs endeavor to maintain high levels of integrity in all we do, don’t we? Wouldn’t you agree we all have a good understanding of right and wrong?
Teaching staff training seminars for over three decades has revealed some interesting practices in CPA firms that indicate some CPAs have a different understanding of what is right or wrong. Here are a few:
• An audit supervisor shared a staff assistant in his firm was copying information from prior years’ working papers, signing audit programs and skipping about half the procedures.
• A partner in a large CPA firm was the engagement leader on the audit of a subsidiary of a large conglomerate. He made private arrangements for a personal fee with the CFO of the subsidiary to prepare an audit report on internal financial statements without performing any audit procedures.
• A partner in a CPA firm signed review reports on financials statements with large amounts of estimated inventory which were determined after discussing the amount of income before the inventory adjustment with the client.
• A partner in a larger local firm signed the supervision documentation on an audit as partner when he hadn’t participated in planning or reviewed any documentation.
• A sole practitioner counseled his clients on how to avoid paying income taxes by removing themselves from all tax roles. He hadn’t filed his personal tax returns for many years.
• A sole practitioner lost his license because he regularly sent a staff assistant to sign his name at registrations for CPE programs.
• A staff assistant performed analytical procedures and explained variations without making any inquiries of client personnel.
• Audit personnel of a smaller CPA firm performed audits in their office using documents the partner obtained from the client’s office. None of the audit team did any fieldwork or communicated with client personnel.
Just so we don’t have any doubt about the world we live in, here’s a summary of the nature of a few of the 50-plus disciplinary proceedings from January and April, 2011 posted on the AICPA’s Professional Ethics webpage:
• A CPA had numerous instances of failing to file timely payroll tax reports for his firm.
• Numerous cases of CPAs either failing to file personal income tax returns or failing to file them timely.
• Several CPAs employed in industry filed false and misleading financial statements with the SEC.
• An auditor of an issuer violated PCAOB rules and auditing standards.
• Several CPAs were convicted of crimes with sentences of more than one year.
I could list more but this is making me nauseous! What is my point? The cost of the lack of integrity, even in seemingly minor circumstances, can be enormous! When a CPA is discovered committing a discreditable act, he or she will pay for a lifetime. On the other hand, a CPA with high integrity and good character will increase revenues and profits by attracting new clients and engagements, be able to hire the best staff personnel and be an outstanding member of a community. Take the easy way—decide on integrity!
If you need a refresher, my on-demand, self-study CPE course, entitled Saving Time with Quality Control, covers both quality control standards and relevant ethics rules. The course can be obtained by clicking the On-Demand Webcasts box on the left side of our home page at www.cpafirmsupport.com.