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April 22 — A spate of prohibited alteration of audit documents has prompted the Public Company Oversight Board to warn auditors that their alterations can cost them severe penalties.
PCAOB's April 21 staff audit practice alert no. 14, Improper Alteration of Audit Documentation, explains in detail which rules auditors must follow when they are under PCAOB inspection or investigation.
The practice alert emphasizes the possibly severe disciplinary consequences of improperly altering audit documentation in connection with a PCAOB inspection or investigation.
The practice alert stated that the board had recently found alterations of evidence and documents being created shortly before or during an inspection, backdated, and provided to PCAOB inspectors.
These recent instances involved both domestic firms and non-U.S. firms, including members of global networks, according to the audit practice alert.
The consequences of “providing improperly altered audit documentation to PCAOB inspectors or investigators may in many cases be far more severe than would be the consequences of the PCAOB staff identifying the audit deficiency that the revisions to the documentation attempt to obscure.”
The audit alert spells out the applicable auditing standards and board rules:
AS 1215 contains the procedures and time frames for auditors to follow. It requires auditors to “have completed all necessary auditing procedures and obtained sufficient evidence to support the representations in the auditor's report" prior to the audit report release date. The report release date is also referred to as the “documentation completion date.” The auditing standard states that "[a]udit documentation should be prepared in sufficient detail to provide a clear understanding of its purpose, source, and the conclusions reached."
Altering audit documentation also violates rule 4006, the duty of registered public accounting firms to coooperate with a PCAOB inspection. Sanctions in the past have included revoking a firm's registration and barring individuals from being associated persons of registered firms, according to the audit practice alert.
If auditors need to add to audit documentation after the report release date, then the rule provides up to 45 more days for the auditor to put together a final set of audit documentation. AS 1215 states that, “audit documentation must not be deleted or discarded after the documentation completion date, however, information may be added. Any documentation added must indicate the date the information was added, the name of the person who prepared the additional documentation, and the reason for adding it.”
AS 1215 states that these rules also apply to audits of issuers and audits and attestation engagements of brokers and dealers under Securities Exchange Act Rule 17a-5.
The PCAOB encourages reporting suspected audit documentation alterations either directly or anonymously to:
The PCAOB also offers potential reduction in sanctions for “early and extraordinary cooperation”(09 APPR 382, 5/10/13).
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Staff Audit Practice Alert 14 is on the PCAOB website at http://src.bna.com/eke.
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