Audit Deficiencies – What’s The Effect – Not Often Openly Discussed – An Elephant In The Room?

If you tune into PCAOB developments you are probably aware that the PCAOB publishes some of the results of its investigations of auditing firm audits of public companies. The PCAOB looks at auditor compliance with auditing standards, rules and regulations. Frequent areas in which significant deficiencies occur have included, for example:

  • Auditing internal control over financial reporting (ICFR)
  • Assessing and responding to risks of material misstatement
  • Auditing accounting estimates, including fair value measurements
  • In cross-border audits, deficient “referred” work — work performed by other audit firms and used by the signing audit firm

This raises a question – if an auditor improperly or insufficiently audits an important issue or area, is the audit still valid, or is it simply invalid, or does additional auditing work then need to be done after the fact? The issue is one of cause and effect. The two areas first listed above, auditing internal control over financial reporting, and assessing and responding to risks of material misstatement, both go to the core of the audit, the audit planning, and how the audit is performed. We don’t want to jump to conclusions, and I am sure that each audit and each situation must be looked at independently, but it is not hard to envision an argument that the audit might be invalid or that additional work now needs to be done after the fact to ensure that the audit is sufficient. If I’m on an audit committee – audit insufficiency and what to do about it make my job unnecessarily more difficult – in other words, I’m not happy with my auditor.

Enjoy. Dave Tate, Esq. (San Francisco)

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Click on my updated Audit Committee Guide – 172 pages – includes SSARS 21 discussion – Free PDF – dtd Oct. 24, 2015

Below I have provided a link to a pdf of my updated Audit Committee Guide, 172 pages, includes a SSARS 21 discussion, dated Oct. 24, 2015. Please do pass the guide to anyone who would be interested. And I will continue to update and add to the guide in the future. Here is the link to the Guide, Tate’s Excellent Audit Committee Guide 10242015

Dave Tate, Esq., San Francisco and throughout California, civil and trust, estate, conservatorship and elder abuse litigation; contentious administrations; business, D&O, real estate and audit committees, http://californiaestatetrust.com and http://directorofficernews.com

California Corporation Books And Records Statutes – Important For Shareholder, Officer and Director Rights And Responsibilities

The press tends to cover litigation and court cases that present sensational facts or issues. Have you ever seen a news release that discussed California corporate bookkeeping and records rights and responsibilities? Probably not. But these rights and responsibilities are extremely important for shareholders, officers, directors and others

I have provided below four important California Corporations Code books and records sections (sections 1500, 1507, 1601 and 1602), plus section 1600 relating to information about shareholders’ names and contact information.

Of course, with respect to the books and records, you still need to determine if all of the information has been correctly recorded, kept and provided, if information has been represented correctly, and what the information and numbers mean about the situation, and that’s where legal, accounting and auditing experience and help are useful. Currently I am also in the process of updating my audit committee guide to include SSARS 21 (for review, compilation, and preparation engagements), and I will be posting the updated guide shortly. Sometimes in these situations there are also financial statements that have been audited, reviewed, or compiled.

The following is California Corporations Code section 1500.

Each corporation shall keep adequate and correct books and records of account and shall keep minutes of the proceedings of its shareholders, board and committees of the board and shall keep at its principal executive office, or at the office of its transfer agent or registrar, a record of its shareholders, giving the names and addresses of all shareholders and the number and class of shares held by each. Those minutes and other books and records shall be kept either in written form or in another form capable of being converted into clearly legible tangible form or in any combination of the foregoing. When minutes and other books and records are kept in a form capable of being converted into clearly legible paper form, the clearly legible paper form into which those minutes and other books and records are converted shall be admissible in evidence, and accepted for all other purposes, to the same extent as an original paper record of the same information would have been, provided that the paper form accurately portrays the record.

The following is California Corporations Code section 1507.

Any officers, directors, employees or agents of a corporation who do any of the following are liable jointly and severally for all the damages resulting therefrom to the corporation or any person injured thereby who relied thereon or to both.

(a) Make, issue, deliver or publish any prospectus, report, circular, certificate, financial statement, balance sheet, public notice or document respecting the corporation or its shares, assets, liabilities, capital, dividends, business, earnings or accounts which is false in any material respect, knowing it to be false, or participate in the making, issuance, delivery or publication thereof with knowledge that the same is false in a material respect.

(b) Make or cause to be made in the books, minutes, records or accounts of a corporation any entry which is false in any material particular knowing such entry is false.

(c) Remove, erase, alter or cancel any entry in any books or records of the corporation, with intent to deceive.

The following is California Corporations Code section 1601.

(a) The accounting books and records and minutes of proceedings of the shareholders and the board and committees of the board of any domestic corporation, and of any foreign corporation keeping any such records in this state or having its principal executive office in this state, shall be open to inspection upon the written demand on the corporation of any shareholder or holder of a voting trust certificate at any reasonable time during usual business hours, for a purpose reasonably related to such holder’s interests as a shareholder or as the holder of such voting trust certificate. The right of inspection created by this subdivision shall extend to the records of each subsidiary of a corporation subject to this subdivision.

(b) Such inspection by a shareholder or holder of a voting trust certificate may be made in person or by agent or attorney, and the right of inspection includes the right to copy and make extracts. The right of the shareholders to inspect the corporate records may not be limited by the articles or bylaws.

The following is California Corporations Code section 1602.

Every director shall have the absolute right at any reasonable time to inspect and copy all books, records and documents of every kind and to inspect the physical properties of the corporation of which such person is a director and also of its subsidiary corporations, domestic or foreign. Such inspection by a director may be made in person or by agent or attorney and the right of inspection includes the right to copy and make extracts. This section applies to a director of any foreign corporation having its principal executive office in this state or customarily holding meetings of its board in this state.

And, the following is California Corporations Code section 1600.

(a) A shareholder or shareholders holding at least 5 percent in the aggregate of the outstanding voting shares of a corporation or who hold at least 1 percent of those voting shares and have filed a Schedule 14A with the United States Securities and Exchange Commission (or in case the corporation is a bank the deposits of which are insured in accordance with the Federal Deposit Insurance Act, have filed a Form F-6 with the appropriate federal bank regulatory agency) shall have an absolute right to do either or both of the following: (1) inspect and copy the record of shareholders’ names and addresses and shareholdings during usual business hours upon five business days’ prior written demand upon the corporation, or (2) obtain from the transfer agent for the corporation, upon written demand and upon the tender of its usual charges for such a list (the amount of which charges shall be stated to the shareholder by the transfer agent upon request), a list of the shareholders’ names and addresses, who are entitled to vote for the election of directors, and their shareholdings, as of the most recent record date for which it has been compiled or as of a date specified by the shareholder subsequent to the date of demand. The list shall be made available on or before the later of five business days after the demand is received or the date specified therein as the date as of which the list is to be compiled. A corporation shall have the responsibility to cause its transfer agent to comply with this subdivision.

(b) Any delay by the corporation or the transfer agent in complying with a demand under subdivision (a) beyond the time limits specified therein shall give the shareholder or shareholders properly making the demand a right to obtain from the superior court, upon the filing of a verified complaint in the proper county and after a hearing, notice of which shall be given to such persons and in such manner as the court may direct, an order postponing any shareholders’ meeting previously noticed for a period equal to the period of such delay. Such right shall be in addition to any other legal or equitable remedies to which the shareholder may be entitled.

(c) The record of shareholders shall also be open to inspection and copying by any shareholder or holder of a voting trust certificate at any time during usual business hours upon written demand on the corporation, for a purpose reasonably related to such holder’s interests as a shareholder or holder of a voting trust certificate.

(d) Any inspection and copying under this section may be made in person or by agent or attorney. The rights provided in this section may not be limited by the articles or bylaws. This section applies to any domestic corporation and to any foreign corporation having its principal executive office in this state or customarily holding meetings of its board in this state.

Dave Tate, Esq., and licensed CPA (inactive) in California, San Francisco and throughout California, http://directorofficernews.com and http://californiaestatetrust.com.

 

 

 

 

 

Ethical imperatives for every board | Listed Magazine

I recently moderated an address by Andrew Fastow, the former CFO of Enron, and followed up by delivering a keynote on the role of the board in ethics, tying in aspects of Mr. Fastow’s speech. What f

Click on the following link for the article: listedmag.com

Dave Tate, Esq. comments. I usually don’t find lists useful – there are just too many of them that lack detail. For unknown reason, nevertheless, I decided to real this article by Richard Leblanc. I recommend that you also read the article, at least for the purpose of stimulating serious thought. You might also consider providing the article to your executive officers, board, audit committee, internal audit and legal counsel.

“Ethics” is kind of one of those vague areas that lacks specifics. It is easier to focus on prudent business judgment (including the business judgment rule) and legal and regulatory mandatory requirements. Factually, Richard’s 10 points actually do that, but under the heading of “ethics.” Also consider the comments at various of the 10 areas about the need for independent evaluation and representation, the ability to obtain independent outside assistance, and the use, oversight and hiring of the internal audit function – these comments are all very worthwhile for consideration.

Thank you for reading. Dave Tate, Esq., San Francisco and throughout California, civil, trust, estate, conservatorship and elder abuse litigation, and contentious administrations, blogs: http://directorofficernews.com and http://californiaestatetrust.com

Guest Post: Access to Internal Investigation Records by Shareholders | The D&O Diary

Mary Gill Courtney Quirós In many instances when allegations of wrongdoing surface at a company, the appropriate course for the company’s board will be to

Click on the following link for the article: www.dandodiary.com

Dave Tate, Esq. comment: A good discussion. Additionally, in any internal investigation, officers, directors, audit committee members and others need to keep in mind that the investigation might be ordered produced or there might be a decision to voluntarily produce the results (which most likely would also put at issue the background information). The fact that there was an investigation, if properly performed, tends to show diligence and business judgment, both of which are required by directors.

Dave Tate, Esq., San Francisco and California, business, real estate, D&O, trust/estate, elder abuse, injury, and professional liability litigation, http://directorofficernews.com and http://californiaestatetrust.com

The Yates Memo: What Is It and What You Need to Know

Click on the following for the article: www.wsandco.com

Dave Tate comment: here’s a very good discussion by Priya Cherian Huskins of Woodruff Sawyer about the recent, September 2015, Yates memo and what it means for the Attorney General’s office and prosecution of individual people, not just corporations, for alleged corporate misconduct.

Dave Tate, Esq., San Francisco and throughout California – litigation for business, real estate, injury, insurance, trusts/estates/conservatorships/elder abuse, and professional liability (including accountants, D&O, fiduciaries, brokers and agents)

CalCPA Seminar – SSARS 21 – December 15, 2015, Interesting and Not Always Clear Changes to Review, Compilation, Preparation, and Non-SSARS Services

I attended a CalCPA San Francisco Chapter SSARS 21 seminar this morning, presented by Mark Dauberman. Mark gave an excellent presentation. SSARS 21 is effective for periods ending on or after December 15, 2015, but it can be implemented in an engagement prior to December 15. I’ll be having more to say about SSARS in future posts as it supersedes all prior SSARS except for certain parts of SSARS 14. As a result, I am also entirely re-writing the discussion about reviews and compilations in Tate’s Excellent Audit Committee Guide. SSARS is very important for CPAs and for all users of financial statements. There will be five types of financial statement related engagements, from most to least advanced: (1) an audit (which is an engagement that is not covered by SSARS 21), (2) a review, (3) a compilation, (4) a preparation, and (5) non-SSARS, non-attest assistance to the client which doesn’t involve financial statement presentation. SSARS 21 is 216 pages, and then there are additional questions and answers, alerts and guidelines.  Some of the provisions present interesting issues crossing between the CPAs who are performing the services and legal counsel involved in providing advice, recommendations and liability risk management.  More blog posts will be following on the specific SSARS provisions.

Dave Tate, Esq. and licensed inactive CPA in California