Analyze the primary accounting issues which form the crux of the litigation or fine for the firm, and indicate the impact to the firm as a result of litigation or fine. Provide support for your rationale.
The BDO Canada was found guilty and censured for purportedly disregarding red flags and issuing distorted and misleading audit opinions. According to PCAOB, BDO Canada LLP outsourced the services of two foreign component auditors that were not registered to finish its audits of the firm. As one of the biggest companies in the world and with high experience the company failed to comply with the rules and regulations involved in issuing audits. The court found the company to have violated Rule 2-02 of Regulation S-X and PCAOB standards by engaging in unprofessional conducts as well as influenced the audit clients to ignore their reporting responsibilities. BDO Canada was fined $50,000 due to audits irregularities which were to be paid within 30 days to the Securities and Exchange Commission. The SEC was given the responsibility to transfer the money to the general fund of the US Treasury (Securities and Exchange Commission, 2018). The censure affected the reputation and profits negatively.
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Examine the key inferences of corporate ethics related to internal controls and accounting principles, which lead to the litigation or fine for the accounting firm .
When it comes to the internal controls, principles, and ethics, BDO accounting firm clearly failed to employ the standards and requirements of an auditing firm. The employees of the firm are the ones responsible for making sure that all the internal control are going well and that everything is in order. In cases like this, the company is the one responsible for ensuring that the staffs get familiarized with the audits requirements for them to identify and rectify critical mistakes. The company had the sole responsibility of making sure that it was keen when signing and approving the audit results and sort out those with issues. Besides, the company’s actions were unethical since it failed to conduct audits in accordance to PCAOB standards (Fino, 2018). It ought to have rejected all the ones that were not clear and had no proper information.
Evaluate the primary ethical standards of the accounting organization's leadership and values which contributed to the approval of the accounting issues and thus created the litigation or fines in question.
The regulatory body which is AICPA has set a Code of Professional Conduct that every firm must follow and abide by. These codes of conduct have four main parts which are rules of conduct, ethical rulings, principals and finally the interpretations of the laws of conduct. Every CPA is supposed to abide by the code of rules of conduct. These rules are meant to make sure that every accounting firm is responsible to the audit clients. In case of any irregularities, the firm will be held accountable. They are designed to make sure that the auditors act professionally. This case act as an example to all the accounting firms and what they should be following (Fino, 2018). Also, the decision rested on the fact Main Street investors need accurate information to make rational decisions. Audit of public firms should register with PCAOB so that they can be monitored regularly to thwart fraud and ensure accuracy in reporting.
Identify specific conduct violations committed by the organization and accounting firm in question. Next, create an argument supporting the actions against the organization and accounting firm, based on the current professional code of conduct for independent auditors and management accountants.
The SEC found that BDO Canada LLP had acted unprofessionally during its audits of Issuer A. Although BDO was a PCAOB registered, it contracted services of two foreign component auditors who were not registered with PCAOB to clear their audits of the firm. (Securities and Exchange Commission, 2018). This audits that were issued were also considered to give misleading opinions about financial statements. The SEC said that the company violated the laws instituting public administrative and cease-and-desist proceedings pursuant to sections 4C and 21C of the SEC.
In cases like this, the BDO should have presented a disclaimer of opinion which was already not an opinion for them. Auditors are known for issuing opinions in situations where they are sure and confident in the sense that their opinion can be supported, but in this case, it was clear that it was not supportable and instead they should have issued a disclaimer of opinion (Securities and Exchange Commission, 2018). The judgment made was very fair for the responding party since it is true they committed fraud, and they deserved the penalty given to them. This should sever as an example to all the firms that are in this kind of businesses.
The decision was fair considering other auditing firms have been fined for engaging in such misconducts. For instance, international affiliates of KPMG, Deloitte & Touche were found guilty by the US authority for performing audits in the absence of PCAOB. Despite the companies knowing that they were unregistered with PCAOB, they went ahead to audit revenues and assets of an anonymous publicly traded firm. KPMG South Africa, just like BDO, relied on the services of unregistered component auditors clear their audits of the firm (Fino, 2018).
Make a recommendation as to how regulators and professional societies may prevent this type of behavior in question for the future. Provide support for your rationale.
The best way for SEC to prevent such malpractices from happening in future is for the regulatory them to make sure that they make the rules for auditing firms publicly available for the auditing firms to familiarize themselves with the rules. They should also conduct educational programs and create awareness of the dangers involved in committing fraud. The regulatory bodies should also make sure that the law strict for those who conduct and operate firms that unregistered with the PCAOB. The penalty imposed on firms found should be substantial. This can be achieved by setting a minimum financial fine that is above the current one. Lastly, the SEC should ensure that companies adopt a compulsory rotation of audit firms. A mandatory rotation will eliminate the risk of auditing firms becoming too familiar with audit clients, therefore, becoming too close to each other. Such kind of relationship is what compromise the independence of audit firms.
References
Fino, J. (2018). KPMG, Deloitte and BDO fined for improper audits. ECONOMIA . Retrieved on 14 February 2019, from https://economia.icaew.com/news/march-2018/kpmg-deloitte-and-bdo-fined-for-improper-audits
The Securities and Exchange Commission. (2018). United States of America vs. BDO Canada LLP . Retrieved on 14 February 2019, from https://www.sec.gov/litigation/admin/2018/34-82859.pdf
