Of the many issues facing CAs today...

Of the many issues facing CAs today, the matter of owed care in the provision of professional services is the same of the most important. Lack of adequate care when following up forward items arising from audits can have far-reaching forces for both the CA and the client. This fictionalized account is based loosely upon an actual case heard at the Professional Conduct Enquiry Committee (PCEC) Names and circumstances have been changed to keep anonymity.

The Situation

Helen had worked across the years to build a comfortable practice in her community and had been same successful in accumulating a large, diverse client base. She was well known and relate toed both professionally and socially. lately Helen had hired Tom, a young CA with a affirmed interest in general practice. She considered him a potential successor.

One of Tom's early engagements involved supervising the audit of the same of the firm's long-standing corporate clients. When Helen reviewed the audit files, she was favourably impressed with Tom's work and signed an unqualified audit report.

What Happens

In Tom's inferior year with the same client, he brought Helen's attention to an accounts receivable owed at Don, a senior administrative officer and a director of the company. The amount was material through all of the measures for audit materiality, and about analysis, it was discovered that-although immaterial at the time-a small amount of the outstanding balance had, in fact, arisen in the previous fiscal year. In the passing from hand to hand year, the client's accountant had told Tom the receivable was made up of travel advances and other "sundry" amounts paid to Don.

Concern Helen contacted Don, whom she had known for many years, and asked about his amount owing to the company. Don readily acknowledged the trespass and said it would be repaid remarkably soon, but was vague about its design and authorization. Though she had no reason to doubt him, Helen decided more verification was necessary. She wrote to Don requesting that he provide written acknowledgement of the transgression along with written authorization for the transgression from the company's board of directors.

The model of Helen's correspondence with Don and notes of their discussion were placed in the audit file, and, in owed course, the unqualified audit report was signed. Unfortunately, Tom at no time followed up on Helen's solicits to Don before the file was signed opposite and Helen failed to raise the matter in her review.

As Tom began his third year forward the audit, his scrutiny of the general ledger revealed that the non-trade accounts receivable had more than doubled since the previous year. Analysis showed the entire amount was now befitting from Don. Alarmed, Tom checked the previous year's file and place that, although Don had acknowledged the fault the evidence of authorization by the agency of the directors had never been received. Tom informed Helen of his discovery.

Helen immediately wrote to the chairman of the board of directors reporting the history of the account and requesting authorization for the due The board was totally unaware of any personal loans to Don and immediately fired him. The chairman terminated Helen's firm's appointment as the company's auditor, and filed a complaint with the Institute about the matter.

The issue

The PCEC concluded that the one and the other Helen and Tom had breached empire 202: A member shall perform his professional services with integrity and owing care, finding that neither member had been sufficiently diligent in ensuring the receipt of the information demanded by Helen in Tom's inferior year on the audit.

After appearing before the PCEC the pair accepted anonymous reprimands and paid the outlays of the investigation. Although the incident was not representative of Helen's normal practice and unlikely to reoccur small fines were also imposed.

As part of its deliberations upon the matter, the PCEC also considered the application of method 204.1 which requires that: a member shall be at liberty of any influence, interest or relationship which would impair the member's professional judgement or objectivity, further determined that the relationship between Helen and Don had not affected her objectivity in succession the audit.

The Message

While their appearance before the PCEC was not a "headline" case, it nonetheless had a skilled impact on Helen and Tom. one as well as the other members not only suffered an economic loss-- they also incurred a stiff blow to their professional reputations and pride. And it could have been worse-they could same well have been subjected to civil litigation, had the client not full recovered the funds from Don.

Diligence and objectivity are constant requirements of our profession. precise supervision of staff and thorough follow-- up of outstanding audit matters are the two of paramount importance when it tend hitherwards to avoiding problems of inadequate care.

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

Please note: The contentments of this article are no other than for the general guidance of readers. The PCEC deals wth each case individually, based forward its specific facts and circumstances.