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PCAOB Warns Auditors Against Audit Document Tampering

Apr 22nd 2016
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In a practice alert issued on April 21, the Public Company Accounting Oversight Board (PCAOB) reminded auditors that improperly altering audit documentation in connection with a PCAOB inspection or investigation is a rule violation and “can result in disciplinary actions with severe consequences.”

In the past several years, the audit regulator has sanctioned firms and individuals for tampering with documentation prior to an inspection. The sanctions in those cases have included revoking a firm’s registration and barring individuals from auditing for registered firms, the PCAOB said.

“Recently, PCAOB enforcement staff has uncovered evidence of additional instances of similar misconduct, including evidence that registered firms and associated persons have improperly deleted, added to, or altered audit documentation in connection with board inspections, and then presented the altered documents to PCAOB inspectors without informing the inspectors of the alterations,” the alert states. “In certain instances, evidence indicates that documents were created shortly in advance of, or during, an inspection, backdated, and then made available to PCAOB inspectors without any disclosure of when they were actually created. These recent instances involve both domestic firms and non-US firms, including members of global networks.”

PCAOB standards recognize that “[c]ircumstances may require additions to audit documentation after the [auditor’s] report release date,” and provides requirements for making such additions. Specifically, AS 1215 (currently Auditing Standard No. 3), Audit Documentation, states:

“Audit documentation must not be deleted or discarded after the documentation completion date, however, information may be added. Any documentation added must indicate the date the information was added, the name of the person who prepared the additional documentation, and the reason for adding it.”

According to the alert, PCAOB Rule 4006, Duty to Cooperate with Inspectors, requires that “[e]very registered public accounting firm, and every associated person of a registered public accounting firm … cooperate with the board in the performance of any board inspection.” This duty to cooperate includes an obligation not to provide improperly altered documents or misleading information in connection with the board’s inspection processes, the alert states.

“Improper alteration of audit documentation not only frustrates the board’s mission, but also undermines the public’s trust that auditors are actually serving their gatekeeper function,” Claudius Modesti, director of the PCAOB Division of Enforcement and Investigations, said in a written statement. “We take matters involving this type of misconduct extremely seriously, and auditors should be aware of the significant enforcement consequences that can follow such behavior.”

Registered firms or individuals who are aware of improper alteration of audit documentation are asked to report that to the PCAOB. They can do so by directly contacting staff in the Division of Registration and Inspections or the Division of Enforcement and Investigations, or by contacting the PCAOB Tip and Referral Center. Individuals can also report document tampering to the US Securities and Exchange Commission.

“In addition, in appropriate circumstances, individuals may make use of their firm’s internal whistleblower and complaint systems to report improper alteration of audit documentation or other suspected misconduct,” the alert states. “Registered firms and associated persons should also take note of the board’s policy regarding credit for extraordinary cooperation, through which the board seeks, among other things, to incentivize firms and associated persons to voluntarily and timely self-report, correct, and remediate violative conduct. Voluntary and timely self-reporting of violative conduct, including violations of the obligation to cooperate with board inspections or investigations, may be a factor in determining whether to impose sanctions against a firm or person and what sanctions to impose.”


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