SEC Accounting and Auditing Enforcement - Essay Example

? SEC Accounting and Auditing Enforcement A. Audits failures in the SEC Enforcement Release On July 2, SEC announced the creation of three enforcements, which included - The Financial Reporting and Audit task force; The Microcap Task Force and the centre for Risk and quantitative Analytics. In this regard, The Securities and Exchange Commission announced charges against three auditors who violated federal security laws. They failed to comply with the U.S. auditing standards in conducting their audits. Among the three audit failures and in their SEC enforcement efforts, the one on WOWJOINT Audits is the most shocking. Wowjoint is a company with its headquarters and operations in and around Beijing, China. Its ordinary shares, warrants, and units are registered with the commission pursuant to Section 12(b) of the Exchange act. The manner in which its audits are conducted makes it the most shocking given the series of the failures and the magnitude of the same. The facts around these audit starts by stating that there was no adequate planning and supervision of the audits as required by the PCAOB Standards. This means that in the first instance the Auditors did not possess adequate knowledge of the firm they were auditing as required by the standards. The second and most sensitive part of the failure is the fact that the Audit team failed to Test Wowjoint’s Revenue computations and this is again due to Valleau and Epstein’s lack of proper audit planning, failure to design and perform adequate audit procedures and general lack of knowledge of how firms in China operate (Murphy, 2013). Furthermore, there was a failure in conducting enquiry a scenario that resulted into insufficient information. The failure to conduct sufficient inquiry and procedures contravened the Standard AU Section 561. The other critical failure in this auditing procedure was the failure by the auditors to perform adequate auditing procedures to aid in determining the collectability of Wowjoint’s large and long outstanding Accounts Receivables hence a contravention of PCAOB Standard 326- Evidential matter. The ignorance of accounts receivables normally have great impacts on assets most so current. In addition to the above, there was inadequate retention of documentation as well as review of the work papers. Al the reasons stated above support the fact that among the three audit failures, the manner in which audit was conducted in Wowjoint is the most shocking (Murphy, 2013). B. Violations in the AICPA Code of Professional Conduct and the NYS Rules The act by the Auditors in Wowjoint’s case has generally gone against the general provisions as prohibited by the Rules of the Board of Regents, part 29-Unprofessional Conduct. Under § 29.10 Special provisions for the profession of public accountancy, unprofessional conduct shall include all the conduct prohibited by this section. The first violation is the failure to adequately plan and supervise the audit as required by AICPA and the NYS rules. According to this, an accountant is therefore obligated to always disclose material fact concerning financial statements as this makes such statements not misleading (Murphy, 2013). The section further prohibits a professional accountant allowing a any other person to practice other than a partner, furthermore, the accountant must not at any point issue the use of their name in presentation of reports as this is only accepted for a qualified public accountant or with the approval of the same individual (http://www.op.nysed.gov/title8/part29.htm#cpa). Secondly, the flouting AICPA rules by audit when they failed to Test Wowjoint’s Revenue Computations. The accountant is required to submit working papers at all times. Failure to do so will result into scenarios where the applicability of a requirement is within the documentation and is rendered redundant. Definition as used in paragraphs will as well be impaired concerning what work papers mean, the documentation of such working papers and the time spans under which such documentation should be done. Another aspect would include the mode of retention of such working papers as guided by the licensees through formal working policies (http://www.op.nysed.gov/title8/part29.htm#cpa). The professional practices concerning the accountants require that availability of the working papers to the departments is ensured and that competent individuals handle the papers. The professional guidelines provides for a way in which a failure to meet competency requirement as observed in the audit above is followed. This depends on the applicability of the requirements and the procedure of conduction supervision (Murphy, 2013). The other AICPA rule and NYS Rule is flouted when the auditors failed to Conduct Sufficient Inquiry, Procedures, and Perform Adequate Auditing Procedures to determine required facts. Under professional practice, willful or gross negligence to comply with substantial provision of laws, exercising of undue influence and directly offering, giving or soliciting a favor from a third party is the onset of fraud and failure as well as compromise of auditing procedures. Individuals offering professional services must never at any point conduct in the practice indicative of moral unfitness and must never produce or file any false reports or fail to file a report required by law. In this manner and some more, the observed terrible failure would be outdated (http://www.op.nysed.gov/title8/part29.htm#cpa) . C. Due diligence, Accept, or Reject offer On receiving an offer from Sherb & Company to join the accounting firm, I would exercise due diligence as follows before considering joining the firm. I would review in an investigative manner the various financial and business processes that the firm deal as this would facilitate me in external audits, assessing the financial health and the growth potential of a given business (Murphy, 2013). I would find about whether all the facts about the given firm are correct and accessible and have been independently verified. I would assemble all the documents of the firm and those of the clients it deals with and specifically the ones I would be required to handle. I would try to establish the reasons behind the other partners engaging in improper professional conducts and if indeed, they engaged in such acts without the meaning of rule. I would proceed to find out from the clients the magnitude of the misappropriations as conducted by the auditors. These would give me a proper platform over which I would make a critical decision of either joining the company or not. As I find out about the firm, I would go a mile and see if it is able to offer professional fees and hence a comfort with the pay given. Most accountancy and audit firms have collapsed in the pats due to a tainted reputation they have with the client. Fresh professionals, someone who is just starting to build a carrier must be so cautious not to be found in such messes. After establishing that the firm would help me develop my skills and competency and it is of good reputation, I would consider joining the firm. In this case, I would not be willing to join Sherb & Company given the mega scandals it has found itself in. References Murphy, E. M. (2013). SECURITIES EXCHANGE ACT OF 1934 Release No. 70823 / November 6, 2013;ACCOUNTING AND AUDITING ENFORCEMENT Release No. 3512 / November 6, 2013. UNITED STATES OF AMERICA before the SECURITIES AND EXCHANGE COMMISSION, 1(1), 1-34. Office of the Professions. (n.d.). NYS Rules of the Board of Regents: Part 29. Retrieved December 9, 2013, from http://www.op.nysed.gov/title8/part29.htm#cpa. Read More