December 29, 2005
PCAOB Goes Inspecting Across the Pond
UK accounting firms who audit companies listed on US exchanges have been receiving visits from the PCAOB. Much to their dismay, this is the price of auditing firms who must comply with Sarbanes-Oxley.
An excerpt on this:
"AMERICAN financial regulators have flown to Britain to scour the books compiled by Britain’s top accounting firms, in their latest move to exploit wide-ranging powers introduced by Sarbanes-Oxley legislation, The Times has learnt.
Inspectors from the Public Company Accounting Oversight Board (PCAOB), the American accountancy regulator, last month examined some financial statements audited by BDO Stoy Hayward, the mid-tier accounting firm. The inspectors were checking up on the firm to see whether its practices are in line with US standards.
It is understood that the US inspectors will now seek to subject other British accounting firms that have clients with US listings to the same level of inquiry.
It is also understood that the PCAOB has a three-year timetable to inspect the UK auditors of foreign companies registered in the US. " For the complete article, click here.
If your firm needs to comply with US Sarbanes-Oxley or Canadian regulations 52-109/52-111, see www.issuescentral.com to learn more about the Compliance Playbook(tm) or the Compliance Partner(tm).
An excerpt on this:
"AMERICAN financial regulators have flown to Britain to scour the books compiled by Britain’s top accounting firms, in their latest move to exploit wide-ranging powers introduced by Sarbanes-Oxley legislation, The Times has learnt.
Inspectors from the Public Company Accounting Oversight Board (PCAOB), the American accountancy regulator, last month examined some financial statements audited by BDO Stoy Hayward, the mid-tier accounting firm. The inspectors were checking up on the firm to see whether its practices are in line with US standards.
It is understood that the US inspectors will now seek to subject other British accounting firms that have clients with US listings to the same level of inquiry.
It is also understood that the PCAOB has a three-year timetable to inspect the UK auditors of foreign companies registered in the US. " For the complete article, click here.
If your firm needs to comply with US Sarbanes-Oxley or Canadian regulations 52-109/52-111, see www.issuescentral.com to learn more about the Compliance Playbook(tm) or the Compliance Partner(tm).
December 19, 2005
Canadian Public Accountability Board (CPAB) Not Pleased with Inspection Results
Much like its bigger cousin in the USA the PCAOB, CPAB is not impressed with much of the audit inspections it has done on Canada's public audit firms. While it cites improvements since 2004, there is a much room for improvement.
One area of particular interest is in Auditor Independence. Unlike firms in the US, many Canadian public accounting firms have told their clients that they can help on documentation of MI 52-109 and MI 52-111. This seems to be a conflict of interest. While documentation is not addressed in today's announcement, it seems that Canada is at least beginning to crack down on these areas of concern.
Excerpt from news release earlier today,
Canadian Public Accountability Board issues public report on 2005 inspections of big four accounting firms
TORONTO, Dec. 19 /CNW/ - Canada's four largest public accounting firms
have more work to do in a number of areas to improve audit quality and achieve
consistent adherence to internal and professional standards, the Canadian
Public Accountability Board (CPAB) said today in a third public report on its
inspections of accounting firms.
"While a number of recommendations have been made to each firm," said
CPAB Chairman Gordon Thiessen, "they have all made progress since we first
inspected them in 2004, and each one has given us written commitments that the
problems we identified in this round of inspections will be remedied."
CPAB's third public report is based on inspections conducted in 2005 of
Canada's four largest firms: Deloitte & Touche LLP, Ernst & Young LLP, KPMG
LLP and PricewaterhouseCoopers LLP. These firms audit more than 4,000 public
companies and other reporting issuers in Canada, representing about 63 per
cent of the total market share by numbers of clients and more than 90 per cent
if measured by market capitalization.
The report says that substantially all of the recommendations CPAB made
to the four firms as a result of its 2004 inspections have been implemented
effectively. "The firms have strong quality leadership and tone at the top and
have generally effective controls over client acceptance and continuance,
human resources and quality monitoring," said CPAB CEO David Scott.
However, the report says the firms must improve in two areas:
- Compliance with firm policies and procedures to ensure auditor
independence - Each firm undertakes internal compliance audits of
partners and managerial employees to ensure they do not have
investments that would violate independence standards. The inspections
found that more than half of the individuals subject to these
compliance audits were in violation of at least one aspect of firm
policies. Most of the violations involved the failure of individuals
to report all of their investments. However, each firm found cases
where the non-reported investments were securities on the firm's
prohibited investment list. There is no evidence in any firm of
improper motivation in holding or failing to report holdings of client
securities.
- Performance on Audit Engagements - Of 87 audit engagements selected by
CPAB for review in the four firms, five engagements (one in each of
three firms and two in the fourth firm) had serious deficiencies, and
CPAB concluded those audits were not conducted in accordance with
Generally Accepted Auditing Standards (GAAS). In all five cases, the
common shortcoming was insufficient appropriate audit evidence to
support the unqualified audit opinion that was given. In addition, a
significant number of other engagements had departures from firm and
professional standards. "While high-quality audit work was evident
throughout our inspections, we were nevertheless disappointed that our
inspection work identified such a large number of cases where
engagement teams did not fully comply with an aspect of professional
standards, or with the firms' own policies and procedures," Scott
said." For the complete article, click here.
If your company needs to effectively and efficiently comply with Canadian or US Investor Protection Legislation such as Sarbanes-Oxley or MI 52-109/MI 52-111, see www.issuescentral.com or call 800.410.6681 ext 112 for more information to learn more about the Compliance Playbook(reg) or Compliance Partner (tm).
One area of particular interest is in Auditor Independence. Unlike firms in the US, many Canadian public accounting firms have told their clients that they can help on documentation of MI 52-109 and MI 52-111. This seems to be a conflict of interest. While documentation is not addressed in today's announcement, it seems that Canada is at least beginning to crack down on these areas of concern.
Excerpt from news release earlier today,
Canadian Public Accountability Board issues public report on 2005 inspections of big four accounting firms
TORONTO, Dec. 19 /CNW/ - Canada's four largest public accounting firms
have more work to do in a number of areas to improve audit quality and achieve
consistent adherence to internal and professional standards, the Canadian
Public Accountability Board (CPAB) said today in a third public report on its
inspections of accounting firms.
"While a number of recommendations have been made to each firm," said
CPAB Chairman Gordon Thiessen, "they have all made progress since we first
inspected them in 2004, and each one has given us written commitments that the
problems we identified in this round of inspections will be remedied."
CPAB's third public report is based on inspections conducted in 2005 of
Canada's four largest firms: Deloitte & Touche LLP, Ernst & Young LLP, KPMG
LLP and PricewaterhouseCoopers LLP. These firms audit more than 4,000 public
companies and other reporting issuers in Canada, representing about 63 per
cent of the total market share by numbers of clients and more than 90 per cent
if measured by market capitalization.
The report says that substantially all of the recommendations CPAB made
to the four firms as a result of its 2004 inspections have been implemented
effectively. "The firms have strong quality leadership and tone at the top and
have generally effective controls over client acceptance and continuance,
human resources and quality monitoring," said CPAB CEO David Scott.
However, the report says the firms must improve in two areas:
- Compliance with firm policies and procedures to ensure auditor
independence - Each firm undertakes internal compliance audits of
partners and managerial employees to ensure they do not have
investments that would violate independence standards. The inspections
found that more than half of the individuals subject to these
compliance audits were in violation of at least one aspect of firm
policies. Most of the violations involved the failure of individuals
to report all of their investments. However, each firm found cases
where the non-reported investments were securities on the firm's
prohibited investment list. There is no evidence in any firm of
improper motivation in holding or failing to report holdings of client
securities.
- Performance on Audit Engagements - Of 87 audit engagements selected by
CPAB for review in the four firms, five engagements (one in each of
three firms and two in the fourth firm) had serious deficiencies, and
CPAB concluded those audits were not conducted in accordance with
Generally Accepted Auditing Standards (GAAS). In all five cases, the
common shortcoming was insufficient appropriate audit evidence to
support the unqualified audit opinion that was given. In addition, a
significant number of other engagements had departures from firm and
professional standards. "While high-quality audit work was evident
throughout our inspections, we were nevertheless disappointed that our
inspection work identified such a large number of cases where
engagement teams did not fully comply with an aspect of professional
standards, or with the firms' own policies and procedures," Scott
said." For the complete article, click here.
If your company needs to effectively and efficiently comply with Canadian or US Investor Protection Legislation such as Sarbanes-Oxley or MI 52-109/MI 52-111, see www.issuescentral.com or call 800.410.6681 ext 112 for more information to learn more about the Compliance Playbook(reg) or Compliance Partner (tm).
December 05, 2005
PCAOB Increases Head Count and Adds Inspectors
Even though they are decreasing fees to registered firms, the PCAOB is increasing its numbers of inspectors. Look for more unflattering reports of registered firms. Seems fair though. Make sure the firms that audit have the same high standards they are requiring under Audit Standard #2 from registrants.
Excerpt from an article:
"2006 PCAOB Budget Approved
AccountingWEB.com - December 05, 2005 - The Public Company Accounting Oversight Board (PCAOB) has approved its 2006 budget of $128 million. The accounting industry regulatory agency will use a $19 million excess from a 2005 budget to reduce the 2006 accounting support fee paid by publicly traded companies according to Reuters.
Accounting support fee assessments of $109.3 million are projected for 2006 while $136.1 million in fees were assessed in 2005 according to the Compliance Reporter. The approved budget has been passed onto the Securities and Exchange Commission (SEC) for final approval according to Reuters. The SEC supervises the PCAOB.
In addition to lower accounting support fees, the PCAOB expects to increase its headcount to 537 employees, including up to 280 inspectors. Their current projected 2005 headcount is 427, with a total inspection staff of 200. Other budget expense items reflected in the new budget include staff training, significant travel, and the maintenance of seven offices other than the Board’s Washington, DC headquarters.
The PCAOB is mandated to oversee auditors of public companies under the Sarbanes-Oxley Act of 2002. Currently 1,586 public accounting firms are registered with the PCAOB and 640 of those are located outside of the U.S., according to the PCAOB’s prepared statement. Annual inspections are required of firms with more than 100 public company clients while those firms with 100 or fewer public company clients are inspected every three years."
Click here for the complete article.
To learn more about Compliance Playbook(tm), see www.issuescentral.com to see a walk through of this award winning solution.
Excerpt from an article:
"2006 PCAOB Budget Approved
AccountingWEB.com - December 05, 2005 - The Public Company Accounting Oversight Board (PCAOB) has approved its 2006 budget of $128 million. The accounting industry regulatory agency will use a $19 million excess from a 2005 budget to reduce the 2006 accounting support fee paid by publicly traded companies according to Reuters.
Accounting support fee assessments of $109.3 million are projected for 2006 while $136.1 million in fees were assessed in 2005 according to the Compliance Reporter. The approved budget has been passed onto the Securities and Exchange Commission (SEC) for final approval according to Reuters. The SEC supervises the PCAOB.
In addition to lower accounting support fees, the PCAOB expects to increase its headcount to 537 employees, including up to 280 inspectors. Their current projected 2005 headcount is 427, with a total inspection staff of 200. Other budget expense items reflected in the new budget include staff training, significant travel, and the maintenance of seven offices other than the Board’s Washington, DC headquarters.
The PCAOB is mandated to oversee auditors of public companies under the Sarbanes-Oxley Act of 2002. Currently 1,586 public accounting firms are registered with the PCAOB and 640 of those are located outside of the U.S., according to the PCAOB’s prepared statement. Annual inspections are required of firms with more than 100 public company clients while those firms with 100 or fewer public company clients are inspected every three years."
Click here for the complete article.
To learn more about Compliance Playbook(tm), see www.issuescentral.com to see a walk through of this award winning solution.
December 04, 2005
PCAOB Gets Tough with Audit Firms
The Big Four got reprimanded for poor work on audits and now the SEC has actully revoked the registrations of two small audit firms. The agency seems to be living up to its charter which is to keep tabs on Audit Firms, improve quality and cull the problem companies. This is all in the interest of investor protection. It is hard work but necessary work.
An excerpt from an article here:
PCAOB Revokes Two Registrations
The accounting oversight board is keeping tabs on smaller firms, too.
Stephen Taub, CFO.com
December 02, 2005
The Public Company Accounting Oversight Board recently revoked the registrations of two small accounting firms and barred their sole shareholders from associating with a public accounting firm for violating the PCAOB's auditing standards.
Clyde Bailey, of San Antonio-based Clyde B. Bailey CPA, agreed to a settlement offer without admitting or denying the board's findings stemming from its audits of four clients during 2004 and 2005.
The PCAOB asserted that Bailey and his firm "failed to exercise due professional care, failed to exercise professional skepticism, and failed to obtain sufficient competent evidential matter." The four companies for which he violated PCAOB's standards are Endevco, formerly Adair International Oil and Gas Inc.; Call Now Inc., formerly Phone One International Inc.; Image Innovations Holdings Inc., formerly Busanda Explorations Inc.; and Health Discovery, formerly Direct Wireless Communications Inc.
In the case of Endevco, the PCAOB noted that on January 26, 2004, Bailey's firm issued an unqualified audit report on Endevco's consolidated financial statements for the year ended December 31, 2003. During that year, Endevco disclosed that it acquired two options to acquire interests in certain oil and gas leasehold interests in Colombia and the Gulf of Mexico. The company stated that it acquired the options in exchange for a $500,000 note and 1.5 million shares of preferred stock valued at $1 per share. Endevco recorded those options as assets valued at $2 million, representing 61 percent of the company's total reported assets at the end of 2003.
Other than obtaining the option agreements and reviewing the board resolution authorizing the option purchases, Bailey "performed no audit procedures to assess the values assigned by management to the option rights or to the preferred shares that were exchanged for those rights," the PCAOB alleged. It also accused Bailey's firm of not performing audit procedures to test whether the option rights would result in a probable future economic benefit to Endevco. "Respondents failed to perform such procedures despite the existence of several factors that cast doubt on Endevco's ability to exercise the options," the board added.
It also criticized Bailey for overlooking red flags concerning Endevco's ability to exercise the options, noting that the accounting firm "relied exclusively on management's assurances" that it would be able to obtain from unidentified sources the funds needed for the exercise price. In addition, the PCAOB asserted that the accounting firm "failed to perform necessary audit procedures" to evaluate whether Endevco appropriate recognized certain revenue.
The PCAOB also revoked the registration of Los Angeles-based Kenny H. Lee CPA Group Inc., and barred its sole shareholder, Kwang Ho Lee stemming from the audit of two clients in 2004 and violations of PCAOB independence standards by one of those clients in 2003.
The PCAOB cited Lee's firm in its audit of GSL Holdings Inc., formerly Bethurum Laboratories Inc., and Axesstel Inc., formerly Miracom Industries Inc.
In the case of GSL, the board asserted that Lee "failed to exercise due professional care, failed to exercise professional skepticism, and failed to obtain sufficient competent evidential matter." For example, the accounting firm "never obtained sufficient competent evidence to reasonably conclude" that GSL had legally acquired two properties in question, according to the PCAOB report. The board also asserted that Lee's audit procedures "were insufficient to reasonably conclude that GSL had properly valued the properties in its financial statements."
In May, the PCAOB took its first action against a public accounting firm, revoking the registration of New York-based Goldstein and Morris CPAs P.C. and barring its managing partner, Edward B. Morris, from associating with a registered accounting firm. For complete article, Click here.
To help your company cost effectively and rapidly comply with Sarbanes-Oxley, see www.issuescentral.com to learn more about Compliance Playbook(tm).
An excerpt from an article here:
PCAOB Revokes Two Registrations
The accounting oversight board is keeping tabs on smaller firms, too.
Stephen Taub, CFO.com
December 02, 2005
The Public Company Accounting Oversight Board recently revoked the registrations of two small accounting firms and barred their sole shareholders from associating with a public accounting firm for violating the PCAOB's auditing standards.
Clyde Bailey, of San Antonio-based Clyde B. Bailey CPA, agreed to a settlement offer without admitting or denying the board's findings stemming from its audits of four clients during 2004 and 2005.
The PCAOB asserted that Bailey and his firm "failed to exercise due professional care, failed to exercise professional skepticism, and failed to obtain sufficient competent evidential matter." The four companies for which he violated PCAOB's standards are Endevco, formerly Adair International Oil and Gas Inc.; Call Now Inc., formerly Phone One International Inc.; Image Innovations Holdings Inc., formerly Busanda Explorations Inc.; and Health Discovery, formerly Direct Wireless Communications Inc.
In the case of Endevco, the PCAOB noted that on January 26, 2004, Bailey's firm issued an unqualified audit report on Endevco's consolidated financial statements for the year ended December 31, 2003. During that year, Endevco disclosed that it acquired two options to acquire interests in certain oil and gas leasehold interests in Colombia and the Gulf of Mexico. The company stated that it acquired the options in exchange for a $500,000 note and 1.5 million shares of preferred stock valued at $1 per share. Endevco recorded those options as assets valued at $2 million, representing 61 percent of the company's total reported assets at the end of 2003.
Other than obtaining the option agreements and reviewing the board resolution authorizing the option purchases, Bailey "performed no audit procedures to assess the values assigned by management to the option rights or to the preferred shares that were exchanged for those rights," the PCAOB alleged. It also accused Bailey's firm of not performing audit procedures to test whether the option rights would result in a probable future economic benefit to Endevco. "Respondents failed to perform such procedures despite the existence of several factors that cast doubt on Endevco's ability to exercise the options," the board added.
It also criticized Bailey for overlooking red flags concerning Endevco's ability to exercise the options, noting that the accounting firm "relied exclusively on management's assurances" that it would be able to obtain from unidentified sources the funds needed for the exercise price. In addition, the PCAOB asserted that the accounting firm "failed to perform necessary audit procedures" to evaluate whether Endevco appropriate recognized certain revenue.
The PCAOB also revoked the registration of Los Angeles-based Kenny H. Lee CPA Group Inc., and barred its sole shareholder, Kwang Ho Lee stemming from the audit of two clients in 2004 and violations of PCAOB independence standards by one of those clients in 2003.
The PCAOB cited Lee's firm in its audit of GSL Holdings Inc., formerly Bethurum Laboratories Inc., and Axesstel Inc., formerly Miracom Industries Inc.
In the case of GSL, the board asserted that Lee "failed to exercise due professional care, failed to exercise professional skepticism, and failed to obtain sufficient competent evidential matter." For example, the accounting firm "never obtained sufficient competent evidence to reasonably conclude" that GSL had legally acquired two properties in question, according to the PCAOB report. The board also asserted that Lee's audit procedures "were insufficient to reasonably conclude that GSL had properly valued the properties in its financial statements."
In May, the PCAOB took its first action against a public accounting firm, revoking the registration of New York-based Goldstein and Morris CPAs P.C. and barring its managing partner, Edward B. Morris, from associating with a registered accounting firm. For complete article, Click here.
To help your company cost effectively and rapidly comply with Sarbanes-Oxley, see www.issuescentral.com to learn more about Compliance Playbook(tm).
