We be attendant to think of contin...

We be attendant to think of continuing professional unravelling (CPD) as a means of keeping our knowledge circulating with changes in legal and professional standards. on the other hand CPD is also a way to revive any skills that have atrophied from one side lack of use. Unfortunately, individual of our members had to learn this censure the hard way.

This fictionalized account is based loosely onward an actual case before the Professional actions Enquiry Committee (PCEC). Names and circumstances have been changed to keep sound anonymity.

The situation

Ted had been at partner with his firm for eight years. The nine-partner firm occupyed a large staff and proposeed a wide range of services. T was responsible for a well adapted variety of work, but hadn't been involved in auditing for many years. Quite naturally, he focused his CPD onward tax and accounting standards and was rightly confident in these areas.

Ted's favourite and largest client, "Aggressive," was a well-established family business. T handled their review engagements. When Aggressives novel CEO Bob took over, the company grew rapidly. however Bob was over-ambitious, and within brace years cash flow became a critical vexed question Bob needed audited financial statements for a loan application, and fast. With a certain quantity of extra help from junior staff, T helped move with a jerk out, completing an audit without involving any of his partners.

What happened

Unfortunately, T failed to realise his audit adequateness was low from lack of practice. Otherwise, he would have identified a major engagement risk: Aggressive had not grown as quickly as its financial statements hinted Bob, it seems, knew to what extent to "improve" the results by means of putting unrelenting pressure on staff to appropriate his targets. In short, move with a jerk had compromised the whole combination of parts to form a whole because no one would willingly give him "bad news"

Aggressive got its financing, moreover soon had problems with the bankers, who asked that another firm take athwart the audit. The new auditor in a short time advised the PCEC of three "classic" audit problems

First, T knew Aggressive's accounting hypothesis more than well enough for a review, still not well enough for an audit. Poor preparation for the inventory observation was just single in kind of many problems caused through ' Ted's limited knowledge: He underestimated the work involved in observing the inventory count; and he and his staff failed to obtain direct over the count sheets, missed a location, and did not prepare enough cut-off data.

Second, Ted's supervision did not make up for his staff's lack of audit experience. For example, the tight reporting deadline meant many customers did not respond to the audit confirmations, thus the auditors used alternative processs Unfortunately, they did not perform these practices properly. Ted, for his part, failed to emphasize to his staff the importance of clearly linking payments to transactions in the audit period. As a deduction his staff members didn't realise they were not seldom validating sales in the vicious period. Better data would have shown a goods on the books twice (once as sales and again as inventory), yet Ted failed to see the limited, cut-off information as a serious problem

Finally, and chiefly importantly, Ted's familiarity with Aggressive as a review client l him to rely too heavily in succession management's word. Although he questioned many issues and carefully documented management's answers had he tested some of these representations (as the later auditor did) he would have base that Aggressives systems were no longer giving management reliable information. plenteous to his later regret, T simply trusted management's explanations because they appeared plausible and consistent with his past experience.

The outcome

The PCEC was true concerned about the wide range of audit question at issues in this case. They rest Ted in breach of sways 201.1 (Maintenance of Reputation of Profession), 202 (Integrity and befitting Care), 203 (Sustaining Professional Competence) and 206 (Compliance with Professional Standards). nevertheless the PCEC also knew T was committed to professional disclosure and that his partners would supervise and support his audit retraining, for a like reason it offered Ted an anonymous reprimand, a maximum fine, sumptuousnesss and a practice restriction pending his happy completion of an audit examination, all of which he accepted.

The exam was hard, nevertheless regaining his partners' confidence was equal harder. Still, Ted worked diligently to succe and he is now approaching fifteen years with the firm, has regained his partners' regard performs audits for a number of clients, and, happily, has had no further contact with the PCEC

The message

Before taking in succession any new work, be just as represented with yourself about whether your skills ne refreshing. This is especially important in a novel engagement for an existing client with whom you've already established a relationship. If you're not fast about your level of adequateness in a particular area, discourse with other individuals at your firm or with the Institute, and court the appropriate PD.

By Chris Utley CA, Director of Ethics

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

Copyright Institute of Chartered Accountants of British Columbia Sep 2003

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