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State Board Report

January 2015

The Enforcement Division of the Public Company Accounting Oversight Board is now ten years old and its director, Claudius B. Modesti, is claiming its efforts have produced visible results: “Our current investigative inventory suggests that we have succeeded in sending a message about the importance of protecting the Board’s processes as we now are seeing fewer instances of non-cooperation [with the PCAOB’s inspections]. While I would never declare victory in this area and we will remain vigilant, I would expect to see fewer cases involving this type of non-cooperation in the future.” Speaking at an AICPA conference in December, Mr. Modesti reported that over the last two years, the PCAOB had sanctioned nine different respondents for failing to cooperate with either an inspection or investigation and it had imposed a $2 million penalty on a Big Four firm for permitting its former partner to associate with it while he was subject to the PCAOB’s ordered suspension.

Besides compliance with the PCAOB’s oversight, Mr. Modesti summarized the results of his Division’s work on three other priority areas: professional skepticism, independence and risks cross-border audits represent. The Division has grown from four employees to over 60, with offices in New York, Chicago and Washington. “Always, our goal is to promote the highest audit quality through accountability and deterrence, and to send powerful messages to both auditors and investors,” he stated.

Helen A. Munter, Director of the PCAOB’s Division of Registration and Inspections, addressed the December 4 conference held by Baruch College and the NASBA Center for the Public Trust, at which time she similarly reported the PCAOB’s inspection teams are focusing on professional skepticism.

Ms. Munter’s Division works through hundreds of inspections each year, conducting risk-based audits to see if weaknesses identified in prior years have been addressed. Among common problems discovered during these inspections are the auditor’s failure to evaluate contradictory evidence and the auditor’s accepting information for calculation without evaluating it.

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