Table of Contents
Expectations – A member is expected to maintain objectivity and integrity when performing his professional service and he shall be free of any conflict of interest. One should not intentionally misrepresent facts or subordinate his decision to others.
2007-Paul T. Fink
The Ethics Charging Authority, dealing with misconducts of CPA, was informed of Paul T. Fink’s conduct in performing professional practices as a controller and a financial officer of a public company. After an investigation, Paul was charged with violation of the AICPA’s and the MSCPAss Codes of Professional Conduct as interpreted below:
02 102-1— knowingly misrepresenting an entity’s financial records or statements.
A member knowingly misrepresents facts in violation of rule 102 if he or she knowingly;
Does or allows another person to make false entries in an entity’s financial records or statements;
Fails to correct an entity’s financial documents that contain false information when he or she is in authorised to do so;
Takes part in signing the document that contains false or misleading information.
Mr. Fink knowingly participated in the backdating of shipping documents, which needed to be collected when expiring and whose terms were not met.
Mr. Fink admitted to sign an invoice regarding the entity’s sale to a foremost customer in the quarter finished March 31, 1996. The invoice was included as a support to an internally prepared lading bill, which differed from the inland lading bill, signed by the carrier on April 5, 1996.
Mr. Fink admitted that he did sign the third quarter of 1996 Form 10-QSB improperly, affirming that the documents were conforming to generally accounting principles.
Mr. Fink was aware before signing form 10-QSB for part of 1996, that the entity was not in a position to attain the contract terms for the transaction. Besides, the letter of credit would expire. Meanwhile, the entity continued enjoying gross profits on the sale under the percentage of completion method.
Rule 102 - 4. Subordination of Judgment by a Member.
Mr. Fink failed to take any investigative action, despite various indications of suspicious activities, and, instead, accepted the assurances of his supervisor that the transactions were legal. In addition, Mr. Fink failed to present his suspicions to the board of directors or the audit committee on time.
Disciplinary Action Taken
The ECA decide to forego any further investigations of Mr. Finks conduct, as well as any extra proceedings in this matter and came to the following agreement, regarding Mr. Fink:
Relinquish his rights to a trial under the bylaws of AICPA, section 7.4 and Article 14 of the MSCPA.
To neither refute nor accept the charges specified above.
To immediately abide the professional standards appropriate to the professional services he performs.
To expel Mr. Frink from the MSCPA and the AICPA.
To address ECA, publishing his name and the conditions of the settlement agreement as well as the charges.
Regarding the gravity of his misconduct, the ECA decided to take the most rational disciplinary action against Mr. Fink. His actions did not only affect the entity he was working for, but also their customers, who suffered losses due to his actions. As he was a member of the AICPA, this was a gross misconduct and violation of the code of conduct.
Craig Szabo – Calabasa, CA- 2011
The ECA (comprising of the AICPA Professional Ethics Executive Committee), after an investigation on Mr. Szabo’s allegations, regarding violating the AICPA Code of Conduct, came to a settlement under the Joint Enforcement Program that was to be effective May 2, 2011. Rule 201 of the AICPA Code of Conduct deals with general standards, part of which is concerned with professional competence of CPAs. The auditor lacked the professional competence to act as an engagement partner, whose role he was performing. The other section of the rule that the auditor violated was neglecting professional care, under which he did the following;
Because of his original and reissued limited scope opinions, the auditor incorrectly referred to Note H as the note containing the summary of investment balances and transactions that were not subject to audit.
The original management and engagement representation letters erroneously informed that he was in a position to perform a full scope audit.
Rule 202- Compliance with Standards.
The auditor failed to document his actions and determine whether the contacts were benefit responsive or not.
The financial statements did not indicate the federal income tax status of the plan.
The Schedule of Assets was incorrectly presented as a note to the financial statements and was not correctly titled. It did not initially include the participants’ loans.
The loans’ interest rates were not included in the revised schedule of Assets.
To support his unqualified opinions, the auditor failed to obtain sufficient competent evidence to support participant loan balances and related transactions.
The auditor did not evaluate loans in default in order to determine whether such loans needed reclassifying.
The auditor failed to document how he audited the received contributions and benefit payments as well as the auditing procedures, performed on the allocation of investment earnings.
The auditor failed to audit the timelines for the remittances of employee contribution to the plan.
The auditor erroneously included principal payments on participants’ loan as additions to net assets.
The 2006 contribution receivable was not different from the 2007 contributions, leading to the overstatement of 2007 contributions amount, reported by the plan.
Rule 501- Acts Discreditable.
Mr. Szabo failed to get an appropriate peer review for wrongly misrepresenting the composition of his practice to his review administering entity regarding his 2008 peer review.
Following this investigation and proceedings, Mr. Szabo agreed to the following:
To surrender his hearing rights as per the AICPA bylaws, section 7.4.
Immediately comply with professional standards in the services he performs and submits the evidence of compliance.
Complete continuing the professional education courses within twelve months.’
Suspension by the AICPA for two years.
The ECA publishes his name, his firm’s name and the charges as per the agreement.
Mr. Szabo knowingly erred in his professional services, and the only considerate meeasure for him was suspension in order to complete the professional course that was required for his practice.
Samuel Herzog, Jericho, New York
Rule 501- Acts Discreditable, Interpretation, 501-7 Failure to file a tax return or pay the tax liability.
Mr. Herzog was charged with failing to timely file Form 1040 for tax years 1999, 2000, 2001, 2003 and 2004.
Following the proceedings, Mr. Herzog was suspended from the membership in NYSSCPA and AICPA for eighteen months. He has to inform the ECA when the IRS lifts his suspension. He was also expected to undertake an eight-hour continuing professional education course with a passing grade of 90% and submit the evidence of this completion within 90 days after the agreement. This disciplinary action taken against Mr. Herzog was especially fair, considering the number of years for which he failed to submit the tax returns Form.
The AICPA used its bylaws to provide disciplinary actions against its members. The penalties range in severity, and second offences are treated very severely. This aims to help CPAs attain a high level of professional competence and awareness. However, expulsion from the AICPA does not prevent one from practicing accounting. Accounting services are vital to public and private organizations, and are generally conducted by qualified practitioners. This profession therefore requires a regulation to ensure its integrity, and one requires a state license to practice. States need to be more stringent in dealing with CPA misconduct to limit such breaches and regulate all areas in accounting. AICPA needs to cooperate with the government in dealing with accounting violations.