Both his 2000 and 2001 audit reports reflected the same thing as summarized in the 2001 report, “In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Xxxxx, Inc. dba XXX as of April 30, 2001 and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles.”
Prior to submitting this I showed it to my old boss and his comment was, “Maxi, That is a cute fictional story. FYI an audited financial is what is required by HUD and that is based on canceled checks, reports etc. Dxxxxx never went off of your reports which were usually way off.”
To my way of thinking, the boss made two critical errors in making this statement. First is the fact that paragraph 4.27 of the Government Auditing Standards (July 2007 Revision) says:
“4.27 Under both the AICPA standards and GAGAS, auditors should plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud. Recognizing the possibility that a material misstatement due to fraud could be present is important for achieving this objective. However, absolute assurance is not attainable and thus even a properly planned and performed audit may not detect a material misstatement resulting from fraud.”
If Dxxxxx didn't use my reports for his audit report, he must have used only the cancelled checks. When I entered the checks into or printed out the checks from QuickBooks I'd put something on the memo line regarding slip number (F34) or the boat's name (Cra Sea Horse). When the boss wrote them manually he sometimes included that information and sometimes didn't. Whether there was anything on the memo line or not, one would have to assume that even a high school bookkeeping student would question one thing. There were many checks made out to Newport Dunes Resort Marina, Super Clean Yacht Service, Ricardo's Boat Service, Newport Landing Fuel Dock, Kanqui Diving Service, Green Willow Quarter Horses, Wild West Trailers, and Pacific Coast Hull, Inc. All of them were charged against rent and automobile expenses. Also, a check made out to Charles Liskey, D.V.M. and carried as a medical expense should have raised a red flag, and didn't.
The second error is that an audit is designed to catch procedural errors in the accounting system of a company. If my reports were “way off” that would indicate that our company had procedural errors. If so, why did Dxxxxx not make some comment regarding the poor bookkeeping procedures used by the corporation? A follow-up question would be if he only reviewed the cancelled checks and not my trial balance, how did he come up with amounts for accounts receivable and accounts payable?
All of these instances beg the question of why a licensed CPA would submit a report he knew was erroneous or (again, in my opinion) fraudulent? Was it just a matter of money or does it go deeper? Is there something wrong with the licensing procedure? Does the California Board of Accountancy just issue a license and then wash their hands of any responsibility for the conduct of its licensees? Yes, there is a complaint procedure, but who, in this case, would use it. Certainly not the company as the CPA's report showed it to be doing everything right. Who else but the government would care? Is the federal government going to file any sort of complaint with the board?
I wish I could say I had an answer. I cannot see any way the board can realistically police its licensees. Maybe the moral fiber of the licensees is at question. Can students be taught morality in school? Can teachers or professors do more to ensure graduates actually abide by the publicly expressed high ideals of board members?
Perhaps it goes even deeper and calls into question the integrity of all California licensed CPAs. Following that line of logic, if other states use the same licensing criteria, does that indicate a failure on the part of every CPA in the United States?
[Editorial note: I had originally included the CPA's actual name and license number as well as the corporate name. I was, however, advised by a friend in the legal community that I probably didn't want to do that. Even though I still have the QuickBooks file and copies of the HUD audits and tax forms, she felt it would be better to blank out some information.]
