In January 1988, the AICPA implemented Rule 102 regarding Integrity and Objectivity. This rule necessitates that members uphold objectivity and integrity, avoid conflicts of interest, and refrain from knowingly distorting facts or compromising their own judgment (AICPA). Rule 102 encompasses three distinct violation interpretations. The initial interpretation states that a member who knowingly includes or allows others to include materially false and deceptive information in financial statements is in violation.
According to a different interpretation, if a member has the power to correct a company’s financially inaccurate and deceptive statements or records and fails to do so, it is considered a violation of the rule. Furthermore, the final interpretation of rule 102 states that signing or allowing someone to sign a document that contains false information is also a violation. Robert Allgyer, who is a Certified Public Accountant at Arthur Anderson LLP, violated rule 102 and is now facing disciplinary actions for the charges against him.
Mr. Allgyer has been charged with several offenses related to the issuance of false and misleading audit reports for Waste Management. The AICPA has suspended him for two years and he has chosen to forgo a hearing and pay a $50,000 fine. Personally, I believe that Mr. Allgyer’s actions warranted imprisonment as they were characterized by recklessness and carelessness. Thus, I find the penalties imposed on him to be insufficient.
In order to prevent future code breaches, the AICPA should consider implementing stricter penalties. Additionally, it is crucial for the AICPA to require CPAs to participate in ongoing ethical education. The AICPA has divided the general standards rule 201 into four sections, outlining the expectations for members’ compliance. The initial section of this rule emphasizes the importance of professional competence in delivering services to clients.
According to rule 201, professionals are required to exercise due professional care when conducting professional services, consistently plan and/or provide supervision, and obtain sufficient data to reach a reasonable conclusion or recommendation (AICPA).
Craig Szabo, a CPA for Szabo Accountancy Corporation, was found to have violated multiple rules. Specifically, he violated rules 201 sections one and two, rule 202, and rule 501. In regards to rule 201, Mr. Szabo failed to demonstrate professional competence while conducting certain services as an engagement partner. Furthermore, he did not exercise due professional care when providing original and reissued limited scope opinions. A notable mistake he made was sending out engagement and management representation letters that incorrectly stated he would and had performed a full scope audit.
The charges against Mr. Szabo led to several agreements between him and the AICPA. He agreed to complete seventy-five hours of continuing education, including ethics, as well as having his name and the firm’s name published with the ECA. Additionally, he waived his right to a hearing under the AICPA bylaws. Mr. Szabo will also be unable to conduct peer reviews until he completes all CPE courses with satisfactory results.
The AICPA suspended Craig for two years, which I believe was a justifiable penalty. However, I think Mr. Szabo should have faced further disciplinary action for his violation of certain rules. In order to prevent future breaches of rule 201, the AICPA should offer ongoing ethical education and increase the penalties for individuals who break this rule. The AICPA created rule 202 to ensure compliance with standards.
The NYSSPCA states that any member providing professional services such as auditing, review, compilation, management advisory, tax, or others must adhere to the standards set by relevant bodies. This rule is straightforward and does not allow for any alternative interpretations. Bruce McDonald, an auditor at McDonald & Associates P. C., violated Rule 202 on compliance with standards by failing to document seven significant factors that should have been included in the audit.
Mr. McDonald’s report states that he lacked enough reliable evidence to back up his opinion on the financial statements for certain audit areas. The report was not altered, and there was no valid reason to deviate from accepted accounting principles by recognizing a benefit obligation without actual medical claims as proof. Additionally, Mr. McDonald didn’t receive written statements from Fund management for all the periods mentioned in the auditor’s report.
The report provided by Mr. McDonald did not meet the requirements of generally accepted auditing standards. The report did not contain a statement affirming that the financial statements adhere to generally accepted accounting principles in the United States of America. Additionally, Mr. McDonald’s report did not provide an opinion on the supplemental schedules that were subject to audit. Lastly, Mr. McDonald was charged with failing to provide an unmodified report and failing to justify departures from generally accepted accounting principles. These departures were evident as the financial statements did not disclose certain information (AICPA).
Bruce has been deemed careless and has given false and misleading statements. In accordance with the AICPA, he has agreed to be admonished by the CPA society of his state, have his name and firm name published with the ECA, complete forty-eight hours of continued education for professionals, neither admit nor deny the charges against him, and refrain from conducting peer reviews until he completes the courses. I mostly support the penalties imposed on Mr. McDonald, except for his ability to accept or deny his actions. I believe that Mr. McDonald should be obligated to fully accept responsibility for his actions.
The AICPA should modify this type of penalty for rule violations to increase CPA awareness of the consequences that could result from their actions. Some penalties given to CPAs are not strict enough. Rule number 501 established by the AICPA is known as Acts Discreditable. According to this rule, a member should avoid actions that bring discredit upon the profession (AICPA). Rule 501 is divided into 9 separate categories of violations. The first category requires members to adhere to the rules and regulations of authoritative regulatory bodies, such as their state board(s) of accountancy, when providing services to clients. For instance, a member may not withhold certain records even if fees are owed for the work performed, as dictated by their state board(s) of accountancy. The second category pertains to workplace discrimination and harassment. The third category addresses failures to comply with standards, procedures, or other requirements in governmental audits.
The fourth category concerns negligence in the preparation of financial statements or records. The fifth category refers to the failure to comply with requirements set by governmental bodies, commissions, or other regulatory agencies. The sixth category pertains to the solicitation or disclosure of CPA examination questions and answers. The seventh category involves the failure to file tax returns or pay tax liability. Finally, the eighth category deals with the failure to follow requirements from governmental bodies, commissions, or other regulatory agencies regarding indemnification and limitation of liability provisions in connection with audit and other attestation services.
Under Rule 501, the final category is confidential Information Obtained from Employment or Volunteer Activities. Elliot Goldberg, a CPA who served a SEC company and performed an audit, violated rule 501-section five. Specifically, the balance sheet in the company’s original 10-k did not contain the comparative balance sheet. Additionally, the company audited by Mr. Goldberg inaccurately recorded expenses related to the purchases of common stock. Mr. Goldberg failed to identify these errors and provided inaccurate and deceptive information.
The AICPA and Mr. Goldberg have reached an agreement wherein he waives his hearing rights as per AICPA bylaws. He will also complete 83 hours of continued education for professionals. Additionally, he neither admits nor denies the actions and consents to having his name published with the ECA. Based on my viewpoint, I find the charges against Mr. Goldberg justified as his actions under rule 501 do not appear to be significantly severe. It appears to be an honest mistake from the actions committed.
References
The information pertaining to Robert E. Allgyer of Lake Forest, IL can be found on the AICPA website at http://www.aicpa.org/forthepublic/disciplinaryactions/2012/pages/allgyer%20ro.
