The SEC has suspended three former accountants of BDO USA, LLP for creating misleading audit documentation by signing incomplete work papers in the audit of a New York insurance company, a practice known as "predating." The senior manager on the audit was suspended from practicing before the Commission as an accountant for at least five years, while the engagement partner and the engagement quality review partner were suspended for three years and one year, respectively (In the Matter of Richard J. Bertuglia, CPA, et al., Release No. 34-84419, October 12, 2018).
Shamoil T. Shipchandler, Director of the SEC’s Fort Worth Regional Office, warned that "accountants who manipulate their files to conceal audit deficiencies represent a serious breach of those professional obligations, and the Commission will impose suspensions to protect investors."
2013 audit. AmTrust Financial Services, Inc., which underwrites and provides property and casualty insurance, engaged BDO USA to conduct an audit of the company’s 2013 financial statements and internal controls over financial reporting. According to the SEC, the senior manager on AmTrust’s 2012 and 2013 audits directed the audit team to sign off on all their work papers and audit programs shortly before AmTrust filed its 2013 Form 10-K, regardless of whether their work was finished.
Audit report. The audit team allegedly performed the predated procedures relating to audit evidence for certain journal entries, internal controls, premium revenue, and share-based compensation during the 45-day documentation completion period following the release of the audit report. The engagement partner and the engagement quality review partner, who at the time did not know about the predating, authorized the release of BDO’s audit report. This demonstrated a failure to exercise due professional care, according to the SEC.
Senior manager violations and suspension. By directing the audit team to predate their incomplete work papers and audit program, the senior manager violated PCAOB documentation standards, the SEC charged. He also failed to exercise due professional care and to properly supervise the audit team. He agreed to be suspended from practicing before the Commission as an accountant with the right to apply for reinstatement after five years.
Engagement partner and engagement quality review partner violations and suspensions. The SEC’s order found that the engagement partner was responsible for the audit and its performance, but he failed to properly supervise the audit, including obtaining sufficient audit evidence that would support BDO’s audit report. He was suspended with the right to apply for reinstatement after three years.
As for the engagement quality review partner, the SEC found that he failed to fulfill the responsibilities of his role by providing his concurring approval of the predated audit report and for failing to review and assess the audit team’s subsequent analysis of omitted procedures after the audit report had been released. He may apply for reinstatement after serving his one-year suspension.
The three respondents agreed to settle the charges without admitting or denying the Commission’s findings.
The release is No. 34-84419.
Companies: BDO USA, LLP
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