03
Feb
10

A.01 Internet Problem (Worksheet 4)

Shelly Huzaynah 21207019

SMAK01-7

Auditing 2

Question :

  1. What specific client-related matters prompted Goldstein and Morris’s decision to conceal certain information from the PCAOB?

Answer :

On the basis of information obtained by the Board in this matter, the Board finds that :

  1. G&M is an accounting firm incorporated in the state of New York and registered with the Board pursuant to Section 102(a) of the Act and PCAOB Rule 2100. Its only office is located in New York City.
  2. Edward B. Morris is a certified public accountant licensed by the State of New York. He is the co-founder, president and managing partner of G&M. Morrs is an associated person of G&M, as that term is defined in Section 2(a)(9) of the Act and PCAOB Rule 1001(p)(i).
  3. From about October 2003 through July 2004, the Firm prepared the financial statements for New York Film Works, Inc. (“NYFW”) and RTG Ventures, Inc. (“RTG”). During this same time period, NYFW and RTG each filed these financial statements with the U.S. Securities and Exchange Commission (“Commission”) under the cover of various Forms 10-KSB and 10-QSB. Both NYFW and RTG are issuers, as defined in Section 2(a)(7) of the Act and PCAOB Rule 1001(i)(iii).
  4. G&M issued an audit report for NYFW, dated October 10, 2003, with respect to financial statements that G&M had prepared for NYFW.
  5. G&M issued an audit report for RTG, dated December 9,2003, with respect to financial statements that G&M had prepared for RTG.
  6. On or about September 20, 2004, the Board, through its Division of Registration and Inspections (“Inspections”), informed G&M that it would be conducting an inspection of the Firm during November 2004. In connection with the inspection, Inspections directed a request to Morris’s attention that the Firm provide the Board with certain information. Among other things, Inspections requested that the Firm provide in wnting the total number of engagement hours incurred by all of the Firm’s accounting or professional personnel related to the Firm’s audits of NYFW and RTG, the number of hours each person worked on the engagement, and certain other documents related to each engagement.
  7. In considering how to respond to the Board’s request, Morris was aware that federal law prohibits a registered public accounting firm from providing its issuer audit clients with certain bookkeeping services,~1 and he and two subordinates discussed what to do about the fact that the Firm had provided NYFW and RTG with the services descnbed in paragraph 3 above. Ultimately, they formulated and carried out a plan to conceal from the Board information about some of the services that the Firm had provided to NYFW and RTG. Pursuant to that plan, on or about October 1, 2004, the Firm submitted to Inspections a written response that omitted the number of hours worked by a G&M employee on the audits of NYFW and RTG. Morris intended and approved the omission of that information from the Firm’s response because that employee had also worked on preparing the financial statements of NYFW and RTG, and Morris was concerned that information about the employee’s work on the audits might lead Inspections to discover that the Firm had also prepared the financial statements – a fact that Morns wished to conceal from the Board.
  8. In addition, Morris and the two subordinates discussed the possibility that the Board would find fault with the Firm because of the lack of certain audit documentation in the Firm’s files. They therefore formulated and carried out a plan to create and back-date certain documents and place them in the Firm’s audit files before Inspections reviewed the files. Specifically, on or about October 15, 2004, Morris and the two subordinates generated purported management representation letters from both NYFW and RTG, back-dated them to dates in 2003 and 2004, and placed them in the Firm’s audit files. In approving and participating in this conduct, Morris intended to conceal from the Board that the Firm had failed to comply with certain PCAOB standards in connection with the preparation and issuance of audit reports for NYFW and RTG.

Question:

  1. What sanctions were imposed on the firm, the managing partner, and the two other partners involved in the investigation? Were these sanctions fair?

Answer :

The sanctions were imposed on the firm, the managing partner, and the two other partners by The Public Company Accounting Oversight Board (“Board” or “PCAOB”) is revoking the registration of Goldstein and Morris CPAs, P.C., and barring Edward B. Morris from being an associated person of a registered public accounting firm.

It was fair, because the firm has concealing information from the board and submitting false information to the board, in connection to a board inspection. It means the firm has break the regulations, so Board must do a disciplinary proceedings. The Board deems it necessary and appropriate, for the protection of investors and to further the public interest in the preparation of informative, fair, and independent audit reports.

Source :

http://www.pcaobus.org/Enforcement/Disciplinary_Proceedings/index.aspx


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