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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Risk Management – Is Anyone Doing It, Yes Some Are – Is There An Agreement On How It Should Be Done, No Definitely Not


Here is a link to a discussion by Matt Kelly of Compliance Week about risk management, suggesting or perhaps stating that risk management is being done by financial institutions and some other public corporations, but it is a mixed bag, and, in my words, risk management and how to do it really have not caught on. And then below the link to Matt’s discussion, I have pasted in this post my response to Matt. Here is the link to Matt’s very interesting discussion – please read it, CLICK HERE.

And here’s my response to Matt’s post. Good discussion Matt. I’m not sure everything in the discussion correlates, but I believe the underlying points are true. Your discussion caused me to think about all of the many, many emails that I receive about new risk management discussions and posts, and some of them are by me. But have they done much good? I question whether they have. I’m not being critical, just truthful. Hordes of risk management, and internal control, and governance discussions and posts are created monthly, and for many, many years. But I have come to believe that people most often take action only if they are presented with a specific situation that they know demands that they take action, or they are required to by law, statute, or regulation, or they are required to by rule, sometimes (such as stock exchange rules), or it becomes an expected practice, sometimes (such as an expected practice in the community or perhaps by a professional organization such as the NACD, etc.). Otherwise, the requirement that the organization, or the board, or the audit committee, or the risk committee is responsible for risk management is simply too vague and indefinite. And that’s the way it is.

Dave Tate, Esq., San Francisco and throughout California, 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.

 

 

 

 

 

Updated Elder Abuse and Protection Presentation Slides – Please Read and Forward

I have provided below a link  to my other blog, where I have posted a PDF of my updated October 12, 2015, elder and dependent adult abuse and protection presentation slides. This is an important topic that is appropriate for every blog and media outlet. The resources to prevent and remedy the problem are not sufficient. Here is the link to my trust, estate, conservatorship and elder abuse litigation blog post and the PDF of the slides, http://wp.me/p1wbl8-dm

Please do read and forward the blog post and the slides to anyone who would be interested.

You can also find additional blog posts on this and related topics on the blog.

Thank you. Dave Tate, Esq., San Francisco and throughout California

Fraud: Is Your Nonprofit Ripe for the Picking?

Fraud has always been a concern for nonprofit organizations, and it’s not going away. A recent Association of Certified Fraud Examiners report shows the median loss is more than $100,000.

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

Dave Tate’s Comments. Internal controls and the potential for fraud are very real issues for nonprofits, their management and officers, and their boards. If you are a nonprofit board member you cannot simply assume that internal controls, the accounting function, and the external audit, review or compilation are taking care of everything. Are these issues that the board has on its agenda, and that the board discusses and evaluates? Have you requested that these issues be put on the agenda? You should.

Dave Tate, Esq. and licensed CPA (inactive) in California.

Blogs: http://directorofficernews.com and http://californiaestatetrust.com

See also Tate’s Excellent Audit Committee Guide, which you can find at http://directorofficernews.com