Fraud complaints with regard to CAs...

Fraud complaints with regard to CAs are rare, yet they do sometimes occur. freshly one complainant insisted that we evacuate a member for fraud. notwithstanding that the subsequent investigation did not find the CA guilty of fraud, it did find the member in breach of professional standards. This fictionalised account is based loosely upon an actual case before the Professional deportment Enquiry Committee (PCEC). Names and circumstances have been changed to conserve anonymity.

The situation

CA Bill had a client named T who ran a real estate investment company called Realty with a silent partner. Several years earlier, Mark, single in kind of Ted's business acquaintances, had sold him upon the idea of buying specific properties in several locations across Canada. Mark and T had agreed to incorporate a recent company-"Newco"-for this purpose. Ted had gazeed after the incorporation and within brace years, Newco had bought and sold three large properties and realized a substantial profit. still Mark was ultimately very unhappy. Why? Because T had at no time issued Mark's share certificate and hadn't paid him any of Newco's dividends.

There were twists to this story. In his review of Newco's first year of operations, Bill institute that Newco had paid more [i]or[/i] less of Mark's personal expenses, which Mark had actioned as business costs. Bill also learned that shortly before Mark had met T he'd been convicted of defrauding a former employer

Suspicious of Mark's grievances, Bill informed T of his findings. Unfortunately however, Bill should have taken Mark's assertions about being a shareholder more seriously-Mark ultimately su T and won The decision diverted on the fact that Mark and T had agreed to be equal shareholders, if it were not that Ted had never issued shares to Mark or to the silent partner. Moreover, the silent partner had received Newco dividends equal to Ted's, while Mark had received nothing.

Finally, Mark had discovered that Realty had loaned Bill $75000 as a secondary mortgage to complete the construction of his personal residence. on a level though Ted had first obtained independent legal advice and the mortgage word s were at a fair market rate, Mark conclud that Bill was "in Ted's pocket" and suspected Bill of being actively involved in defrauding him. Mark filed a complaint with the PCEC

What happened

The PCEC didn't accept Mark's view, determining instead that Bill had also been a victim of Ted's scheme to avoid paying Mark. The PCEC lay the foundation of no evidence that Bill had committed fraud, nor did they consider him in breach of direction 208.1 (Confidentiality of Information) with prize to his mortgage.

However, the PCEC did have serious make uneasys about Bill's work. Bill had reviewed couple years of Newco's financial statements, and the PCEC base numerous careless errors in the couple his working papers and the financial statements. Furthermore, Bill had accepted Tom's explanation that Mark had failed to "earn" his one-third share, and had prepared financial statements showing Newco as having single two outstanding shares (Ted and the silent partner). Finally, despite Mark's professs and the absence of any documented agreement, Bill had not bothered to enquire with Newco's registered office. Had he done in the same manner he would have discovered that Newco's lawyer held the solitary issued share of Newco in trust for Tom, besides Newco had paid dividends to the two Tom and the silent partner.

The PCEC also conclud that Bill lacked objectivity because of his indebtedness to Tom. Because of his conflict, Bill should not have agreed to breed review engagement reports for Realty. He'd also issued Notice to Reader reports upon Realty's interim financial statements without disclosing his conflict in these reports.

The outcome

The PCEC determined that Bill had breached directions of Professional Conduct 201.1 (Maintenance of Reputation of Profession); 202 (Integrity and becoming Care);, 203 (Sustaining Professional Competence); 2041 (Objectivity - Assurance and Specified deeds Engagements); 204.3 (Objectivity - Disclosure of Impairment of Objectivity); and 206 (Compliance with Professional Standards).

Bill accepted a determination and recommendation requiring that he resign all yet to be assurance engagements for Ted's companies until he'd repaid the mortgage loan. He also agreed to disclose his conflict in the Notice to Reader reports for any company make submissive to Ted's influence. In addition, Bill agreed to engage a tutor for all assurance engagements. Finally, he accepted an anonymous reprimand, and paid a substantial fine and part of the investigation costs

The message

If you have assurance or specified auditing steps engagements, make sure you're clear from any influence, interest, or relationship that could impair or could be seen to impair your professional judgement or objectivity.

Finally, a for the use of all theme in my column: Maintain your professional standards at all times!

Comment or questions? Contact me at utley@ica.bc.ca.

Please note: The peaces of this article are single intended for the general guidance of readers. The PCEC deals with each case individually, based in succession its specific facts and circumstances.