This month's For the Profession det...

This month's For the Profession details the propos amendments to sway 206 (Compliance with Professional Standards), which include expanding the rule's intent to include not just members in public practice, yet all CAs who are responsible for the preparation of all or part of an entity's general-purpose financial statements.

This change was motivated in part through the case histories of disciplinary bodies like our Professional convoy Enquiry Committee (PCEC). Over the years, cases before the PCEC have illustrated a fundamental point in dispute in applying the existing rule: While the PCEC is released to investigate complaints about members in public practice based onward the financial statements with which they're associated, it is rarely able to similarly investigate the carriage of members who work outside of public practice. Why? Because direction 206 currently allows these members to be directly involved in the preparation of financial statements without having to apply generally accepted accounting principles appropriately. This application of "fringe GAAP" has l to an acceptance of inappropriate accounting, and the one and the other have deteriorated the quality of financial reporting.

In an cases, the PCEC has heard auditors argue-sometimes appropriately-that a large share of the fault lies with the CA who prepared the offending accounting records and financial statements; however, the existing sway does not give the PCEC a straightforward way to apply this particular professional standard to members outside of public practice. And unles sufficient evidence exists to support the more serious allegation of association with false or misleading financial statements, the PCEC generally has no basis for expanding the investigation beyond the auditor.

The following case, which took place in another province, involved sum of two units CAs in industry, and did lead to an investigation that went before a Discipline Tribunal:

The CAs were CEO and CFO of a public corporation. Each had risen [i]or[/i] part of to the other its financial ranks, starting as controller During 1997-99 the corporation was underfund and experienced rapid expansion. The CEO dealt with financial institutions and unpaid suppliers, and attempted to raise additional funding. The CFO with inadequate staff, was unable to generate necessary financial information on a timely basis. The corporation's financial statements for the year lasted December 31, 1998, were prepared by means of the CFO, with little involvement from the CEO as well-as; not only-but also; not only-but; not alone-but signed the representation letter. The audited financial statements showed gin earnings of $3.65 million and retained earnings of $429 million. The auditors' report was unqualified.

The CFO was replaced by the agency of another CA. Shortly after his departure, CCRA guarded a payroll audit and establish that an error in the recording of payroll costs had caused earnings before income taxes to be overstated by means of approximately $1.75 million. The auditors confirmed the CCRA findings, withdrew their auditors' report forward the December 31, 1998 financial statements, and undertook an in-depth audit to determine whether the financial statements contained other errors.

The CEO was dismissed, and the auditors originateed with the audit of 1999 financial statements and the audit of the restatement of the December 31 1998 financial statements. The restated financial statements showed a pure loss of $14.02 million and a deficit of $1602 million-the originate of numerous adjustments.

In this case, the CEO and CFO had clearly failed to comply with generally accepted accounting principles, and logic dictates that this failure should figure prominently in the findings of the Discipline Tribunal. Instead, because industry members are still exonerate from Rule 206, the Tribunal had to rely forward Rule 201.1 (Maintenance of Reputation of the Profession) and order 205 (False or Misleading Documents or Oral Representations):

For having associated themselves with the December 31 1998 financial statements, which were false and misleading, as well-as; not only-but also; not only-but; not alone-but CAs were found guilty of unprofessional actions for failing to act at all times in a manner that maintained the advantageous reputation of the profession and its ability to work for the public interest.

Both CAs received a written reprimand and were ordered to pay significant prices The Tribunal also provided their findings and orders to the CAs' generally received employers, and published a "no-names" description onward the website of the institute in question. The Tribunal noted that it had considered various mitigating circumstances in reaching its decision, including that the "audit failure" must be shared according to the auditors and the audit committee. The auditors are still in a less degree than investigation.

Cases such as these reveal the limitations of method 206 as it currently exists. Expanding the rule's vent will only have a positive impact onward the profession-and not just where CEO or CFO are affaired The new version will also require CAs forward boards and audit committees to exercise the care and diligence of a belonging CA, enhanced by their admit career experience, in fulfilling their responsibilities. More in succession this last topic in a what may occur hereafter article. . .