ETHICAL DILEMMAS As the public com...

ETHICAL DILEMMAS

As the public company arena becomes increasingly complicated more and more is reckon uponed of CAs practising in this area. This means CAs performing public company audits must either sustain their professional capableness or defer the work to specialists.

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

The situation

Peter is a CA with 20 years of experience in public practice and ten years of experience as a sole-practitioner. His solo practice consists of several long-time clients for whom he primarily performs compilation engagements and tax work.

Until freshly Peter also had one public company client. For five years, he serv as the auditor for Pubco a TSXV-listed public company, if it were not that unfortunately, the experience ended in disaster.

For common thing, Pubco turned out to be a dead payer, causing Peter's outstanding unconditional tenures to grow. For another, changes in market conditions in 1999 forced Pubco's management to restructure the company; and after Pubco was reorganized into several operating subsidiaries in Canada and overseas, a number of tangled skein accounting and auditing issues arose. Peter's following difficulty in dealing with these issues caused delays in the release of the financial statements.

What happened

Peter failed to deliver auditor's reports onward Pubcos 1999 and 2000 consolidated financial statements in time to engage the filing deadlines. He continued to miss the deadlines, despite repeatedly promising otherwise to Pubco's management.

To make matters worse, when Peter finally did deliver the audited financial statements to the company and the regulator in January 2002 it diverted out the statements had not been prepared in accordance with generally accepted accounting principles and contained numerous errors. For instance, note disclosure for many accounting items, including details of the reorganization, was not in accordance with the CICA Handbook. Nor did the auditor's reports go after the Handbooks recommendations.

As a consequence Pubco was cease-traded in July 2000 for failing to file timely financial statements for 1999 The company was forced to sustain a lengthy and costly regulatory review to reactivate their listing, and its shareholders were unable to trade company stock for a year and a half. The company's failure to file in succession time also exposed the company to the risk of being de-listed on the TSXV. Furthermore, had the company been de-listed, it would not have met the TSXV's of the present day listing requirements.

During the course of the review proces the regulator indicateed concerns with both the financial statements and the auditor's reports, and communicated these regards to the PCEC. An investigation was authorized, and a review of Peter's audit files for 1999 and 2000 revealed a serious lack of audit documentation-the files resembl compilation files, with little or no audit evidence onward the account balances. It was clear that the audits had not been performed in accordance with generally accepted auditing standards, as is required by the agency of the CICA Handbook.

The issue

The PCEC concluded that, in failing to provide the audited financial statements for Pubco onward time (1999s financial statements were athwart a year and a half late; those for 2000 were through six months late), Peter had breached direction 201 (Maintenance of the Reputation of the Profession) and authority 202 (Due Care).

The PCEC also lay the foundation of Peter in violation of behavior 206 (Compliance with Professional Standards) for his failure to make secure that his auditor's reports and financial statements were issued in accordance with the CICA Handbook's recommendations. The PCEC conclud that Peter had breached mastership 205(a) (Association with False and Misleading Documents).

Finally, finding that Peter had not kept abreast of progressive growths in professional standards involving public companies, the PCEC build him in breach of domination 203 (Sustaining Professional Competence).

The PCEC approveed that Peter be restricted from performing any assurance work in his practice of public accounting and that he accept an anonymous reprimand, pay a fine of $10000 and pay the require to be paid [i]or[/i] undergones of the investigation. Peter accepted the recommendations.

The message

Quite simply, Peter got in through his head-not knowing how to fitly account for Pubco's unusual accounting issues or for what cause to audit such a complicated organization. But his many errors could have been avoided. He could have done more [i]or[/i] less research, obtained advice, or asked another CA to review his work; or he could have simply recognized his lack of adequateness and resigned from the engagement at the opening Instead, Peter made commitments he couldn't keep-commitments that, from the beginning were compromised by an issue of outstanding receivables.

In the conclusion Peter did not want to continue performing audits and was actually relieved to have his licence restricted. However, his experience with the PCEC prov to be a high-priced lesson.