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Disciplinary Action Paper

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    In January of 1988 the AICPA introduced the Integrity and Objectivity Rule number 102. The rule states that a member shall maintain objectivity and integrity, shall be free of conflicts of interest, and shall not knowingly misrepresent the facts or subordinate his or her judgment to others (AICPA). Rule number 102 has three separate violation interpretations. The first interpretation of rule 102 states that a member that makes, permits, or directs another to make materially false and misleading entries in financial statements is a violation.

    A second interpretation of the rule states that if a member fails to correct an entity’s financial statements or records that are materially false and misleading when he or she has the authority to correct the entity. The final interpretation of rule 102 declares that the signing of a member or permitting someone to sign a document that is falsely misrepresented is a violation. Robert Allgyer a CPA at Arthur Anderson LLP violated rule 102 and has received disciplinary actions for the charges that have been brought against him.

    The charges that Mr. Allgyer was charged with include reckless and knowingly caused the issuance of materially false and misleading audit reports for the company of Waste Management. The AICPA has put Mr. Allgyer under a two year suspension. Mr. Allgyer has also agreed to waive his rights to a hearing and pay a monetary fine of 50,000. In my opinion the actions that were performed by Mr. Allgyer should have required imprisonment for his actions. He was careless and reckless in his actions and I feel that the penalties brought against him were not severe enough.

    For the AICPA to eliminate further breach of code for this rule, I think that they will have to create more severe penalties. A second option that the AICPA must do is mandate that CPA’s have ethical education on a continued basis. The general standards rule 201 established by the AICPA is divided into four sections describing how a member should comply. The first category of the general standards rule declares that professionals must be competent to complete and carry-out certain services that they would provide to their clients.

    The second classification of rule 201 states that professionals must exercise due professional care when performing professional services. The third category under the general rule 201 explains that members should consistently plan and /or provide supervision in the conduction of professional services. The final section of general standards rule 201 expresses that a member shall obtain sufficient data to come to a reasonable conclusion/recommendation in relation to any professional services performed (AICPA).

    Craig Szabo a CPA for Szabo Accountancy Corporation violated rules 201 sections one and two, rule 202, and rule 501. Focusing on rule 201, Mr. Szabo did not perform professional competence when conducting certain services as an engagement partner. Mr. Szabo also did not perform due professional care when providing the original and reissued limited scope opinions. He incorrectly sent the original engagement and management representation letters that erroneously indicated that he would and had performed a full scope audit.

    The charges that were brought against Mr. Szabo resulted in numerous agreements between him and the AICPA. Mr. Szabo agreed to complete a total of seventy-five hours of continuing education for professionals that included ethics. Mr. Szabo also agreed to have his name and the firm’s name published with the ECA. Mr. Szabo also waived his right to a hearing under the AICPA bylaws (AICPA). Mr. Szabo will also be unable to complete peer reviews until all CPE courses are completed with satisfactory results.

    The AICPA also suspended Craig for a period of two years. All of the penalties that were brought against Mr. Szabo were justifiable in my opinion. I feel that he could have received additional disciplinary action for the type of rules that were broken by Mr. Szabo. For the AICPA to eliminate further breach of code relating to rule 201, the AICPA will need to provide constant ethical education, and up the penalties that will be brought against anyone willing to violate rule 201. The AICPA established rule 202 labeling it compliance with standards.

    According to NYSSPCA, a member who performs auditing, review, compilation, management advisory, tax, or other professional services shall comply with standards promulgated by appropriate bodies. The expectations of this rule at to the point and do not offer any other interpretations of the rule. Bruce McDonald an auditor for McDonald & Associates P. C. violated Rule 202 compliance with standards. Mr. McDonald failed to document seven separate important factors that should have been included in the audit.

    He also did not obtain sufficient competent evidential matter to support the opinion on the financial statements with respect to the certain audit areas. Mr. McDonalds report was not modified, nor was there justification for departures from generally accepted accounting principles for the Fund’s financial statements inappropriately recognizing a benefit obligation without actual medical claims to support the obligation. Mr. McDonald did not obtain written representations from Fund management for all periods covered by the auditor’s report.

    The report that he provided did not comply with generally accepted auditing standards in that the report did not include a statement that the financial statements are in conformity with generally accepted accounting principles in the United States of America. His report did not express an opinion on the supplemental schedules subject to audit. The last thing that Mr. McDonald was charged with was not providing a report that was not modified, nor was there justification for departures from generally accepted accounting principles in that the financial statements did not disclose the following (AICPA).

    Bruce was careless and provided false and misleading statements. He agreed with the AICPA to be admonished from the CPA society of his state, have his name and firm name published with the ECA, complete forty-eight total hours of continued education for professionals, neither admit nor deny the charges brought against him, and to not conduct peer reviews until the courses are completed. I agree with the majority of Mr. McDonald’s penalties that was agreed upon, except the accepting or denying of actions. I feel that Mr. McDonald should be required to accept all responsibility for his actions.

    The AICPA should change this type of charge in all rule violation penalties to make the CPA more aware of the actions and the consequences that it could bring upon them. There is not enough harshness behind some of the penalties that are being given to the CPA’s. Acts Discreditable is rule number 501 that was set by the AICPA. This rule states that a member should not commit acts discreditable to the profession (AICPA). Rule 501 is divided into 9 separate categories of violations. The first category states that members must comply with the rules and egulations of authoritative regulatory bodies, such as the member’s state board(s) of accountancy, when the member performs services for a client and is subject to the rules and regulations of such regulatory body. For example, a member’s state board(s) of accountancy may not permit a member to withhold certain records notwithstanding fees due to the member for the work performed. The second category is discrimination and harassment in the workplace. The third category is the failure to follow standards and/or procedures or other requirements in governmental audits.

    The fourth category is negligence in the preparation of financial statements or records. The fifth category is the failure to follow requirements of governmental bodies, commissions, or other regulatory agencies. The sixth category is solicitation or disclosure of CPA examination questions and answers. The seventh category is the failure to file tax return or pay tax liability. The eighth category is the failure to Follow Requirements of Governmental Bodies, Commissions, or Other Regulatory Agencies on Indemnification and Limitation of Liability Provisions in Connection With Audit and Other Attest Services.

    The final category under Rule 501 is the confidential Information Obtained from Employment or Volunteer Activities. Elliot Goldberg a CPA that provided services to a SEC company and conducted an audit was charged with violating rule 501- section five. Focusing on rule 501-section five, the balance sheet accompanying the company’s original 10-k did not include the comparative balance sheet. Also the company that was audited by Mr. Goldberg did not record the expenses for the purchases of company’s common stock correctly. Mr. Goldberg did not detect these mistakes and reported false and misleading information.

    The AICPA and Mr. Goldberg agreed that he would waive his rights to a hearing under AICPA bylaws, completion of 83 hours of continued education for professionals, neither admit or deny the actions, and have his name published with the ECA. The charges that were brought against Mr. Goldberg were justifiable in my opinion, because I do not believe his actions were that severe under rule 501. From the actions committed it seemed like an honest mistake.


    AICPA. (2012) Allgyer, Robert E. – Lake Forest, IL. Retrieved from http://www. aicpa. org/forthepublic/disciplinaryactions/2012/pages/allgyer%20ro

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