Guest Author - Consuelo Herrera, CAMS, CFE
Stigma is a mark of disgrace or infamy; a stain or reproach, as on one's reputation.
Recently the Securities and Exchange Commission (SEC) charged the auditors of Bernard Madoff's broker-dealer firm with committing securities fraud by falsely representing that they had conducted legitimate audits, when in fact they had not.
The SEC notes that Friehling enabled Madoff's Ponzi scheme by falsely stating, in annual audit reports, that F&H audited BMIS financial statements pursuant to Generally Accepted Auditing Standards (GAAS), including the requirements to maintain auditor independence and perform audit procedures regarding custody of securities.
F&H also made representations that BMIS financial statements were presented in conformity with Generally Accepted Accounting Principles (GAAP) and that Friehling reviewed internal controls at BMIS, including controls over the custody of assets, and found no material inadequacies, according to the SEC information. It stated that Friehling knew that BMIS regularly distributed the annual audit reports to Madoff customers and that the reports were filed with the SEC and other regulators.
Expelled or Suspended
The American Institute of Certified Public Accountants (AICPA) clearly defines the scope and consequences for an expelled or suspended member such as David G. Friehling and his firm, Friehling & Horowitz, CPAs, P.C. (F&H). Here is what the IACPA states in its definitions of Ethics Sanctions/Dispositions:
The AICPA expelled a member or suspended a member for a period up to two years. During the suspension period, a member must not identify himself or herself as an AICPA member on any letterhead or other written material, and may not vote, or hold a committee position or an office in the AICPA. In addition, the ethics committee or a Trial Board panel may direct a member to complete specified continuing professional education (CPE) courses or take other actions (e.g. submit subsequent reports and/or work papers for continued monitoring) during the suspension period.
Under the AICPA bylaws, the AICPA can expel or suspend a member without a hearing due to the following: the member's certificate as a CPA or license to practice is suspended or revoked or a member is convicted of:
(i) a crime punishable by imprisonment for more than one year,
(ii) the willful failure to file any income tax return which they are required by law to file,
(iii) the filing of a false or fraudulent income tax return, or
(iv) the willful aiding in the preparation and presentation of a false and fraudulent income tax return of a client.
Further, the bylaws provide for expulsion or suspension (or admonishment) of a member without a hearing when a disciplinary action is taken against such member by an approved governmental or other organization
Publication of expulsions and suspensions are mandatory.
The AICPA Joint Trial Board publicly admonished a member who has violated the Code of Professional Conduct but the gravity of the violation does not warrant suspension from membership.
Publication of admonishments is mandatory.
Corrective Action Required
The ethics committee issued a letter of required corrective action that directed a member to complete one or more of the following: up to 80 hours (or more) of specified CPE courses, submit subsequent reports and work papers for review, and/or submit to a pre-issuance review by an outside party of reports, financial statements, and working papers on selected engagements. The ethics committee issues letters of required corrective action when it concludes that remedial action is appropriate and the violation is not of sufficient gravity to warrant suspension or expulsion from membership. The AICPA does not publish the terms of the letter of required corrective action.
No Violation / Dismissal
The ethics committee completed the investigation and found no prima facie evidence of a violation of the Code of Professional Conduct.
The ethics committee dismissed a case as no provision of the Code of Professional Conduct applies to the complaint or the allegations in the complaint do not constitute a Code violation.
No Further Action
The ethics committee closed the investigation because it could not obtain sufficient evidence that a prima facie violation of the Code of Professional Conduct had or had not occurred or it decides, in its discretion, that the investigation should no longer be pursued.
Subsequent Monitoring Completed Satisfactorily
The ethics committee accepted the work product that members were required to submit based on the prior disciplinary matter.
Mainly comprised of cases referred by the AICPA to state societies for investigation as set forth in the agreement between the AICPA and state CPA society.
Forensic accountants must abide a very stringent Code of Ethics that aligns all dispositions of the AICPA Code of Professional Conduct.