Elements of Professional Judgment Framework - Essay Sample

Introduction

The module addresses the violation of auditing standards, with a particular focus on disciplinary actions against Green, Bertufglia and Nagdimov auditors, whose membership was temporarily suspended on October 12, 2008, under SEC's order (AICPA, 2018). The case concerned unprofessional conduct by Bertuglia, Green, and Nagdimov during an audit performed by BDO USA, LLP for AmTrust Financial Services, Inc. AmTrust involved BDO to perform a cohesive review of the organization's 2013 amalgamated yearly monetary declarations and internal control over financial reporting in line with Public Company Accounting Oversight Board principals. In the involved, Bertuglia was staffed as the engagement partner, Green as the engagement quality review partner and Nagdimov staffed as a senior manager.

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Nagdimov asked BDO's audit team to sign-off all the work documents and audit programs irrespective of whether the work was complete before AmTrust filed its 2013 Form 10-k. This was in efforts to make audit processes look complete before the issue date for BDO's audit report. The audit team followed Nagdimov's orders. Further, Nagdimov asked the audit team to load blank papers into BDO's electronic work paper files and sign-off on those documents. Deceptive audit documentations do not reflect the dates the audit processes were completed and the audit evidence was actually obtained. The act of generating deceptive audit documentation by signing unfinished work documents or audit programs is basically characterized as 'predating' (AICPA, 2018).

American Institute of Certified Public Accountants

In this order, the redating of the audit documentation was envisioned to cover the failure to finish essential procedures and acquire adequate audit evidence for assured journal entries, internal controls, premium revenue, premium receivable and share-based return before the release date for BDO's audit report (AICPA, 2018). The audit team executed these unfinished processes during the 45-day documentation completion period following the report release date, after the audit report has been released. The audit team then documented the extra processes executed and succeeding evidence acquired by overwriting or supplementing the existing audit documentation in the predated work documents so as to reserve the original dates.

Regardless of these audit documentation deficits, Mr. Bertuglia and Mr. Green, certified the issuance of BDO's audit report before AmTrust filed its 2013 Form 10-k on March 2014. Therefore, the audit report offered outright opinions on AmTrust's 2013 financial statements and ICFR. Bertuglia and Green were unaware of the audit team failure to finish essential audit processes and get enough audit evidence to sustain the report at the time (AICPA, 2018). The duo only learned of the audit deficient a week after BDO's audit report was Published in AmTrust's 2013 from 10-k. To avoid such irregularities auditors are supposed to exercise due professional care before an audit report is released.

Thus Bertuglia, Green, and Nagdimov violated auditing standards which are recognized by PCAOB. Bertuglia failed in his role as an engagement partner, especially in proper supervise and engagement. The team members specifically violated various PCAOB principles and audit documentation principles under Bertuglia supervision (Alvin Arens, Randal Elder, & Beasley, 2016). The members also failed to finish the essential audit processes, and acquire enough audit evidence, to support BDO's audit report. Green failed to exercise due professional care and accomplish his role as the engagement quality review partner when he approved the release of BDO's audit report. Also, he did not review and assess the audit team's succeeding investigation of absent procedures after the audit report release date. Nagdimov violated PCAOB audit documentation principles by guiding the audit team to predate their unfinished work documents and audit programs (Arens, Shailer Greg, & Best, 2011). Additionally, in assistance Bertuglia to supervise the audit documentation, he failed to exercise due professional care and properly supervise the engagement in Nagdimov's allocated areas.

Additional Element and Disciplinary Actions

The Securities and Exchange Commission considered it suitable that non-judicial determinations be inaugurated against the three, pursuant of section 4C 1 of the Securities Exchange Act of 1934 Section 4C (Arens, Shailer Greg, & Best, 2011). Under this section SEC could contempt an auditor, repudiate, provisionally or eternally, to an individual the pleasure of performing or exercising before SEC in any way, if that person is found; lacking character or to have been involved in inappropriate expert behaviour, not have the mandatory credentials to represent others, or to have voluntarily assisted the violation of auditing standards. After reviewing the findings, the Commission found the three to have engaged in improper professional conduct.

Bertuglia was denied the pleasure of performing or exercising before the SEC as an auditor but he could apply for re-establishment after three years. This was a fair disciplinary action against Bertuglia. Auditors are key gatekeepers in finance reporting (Arens et al., 2011). Therefore, they should exercise absolute trust and professionalism in their role of audit documentation. Given the significance of financial reporting and auditing to the integrity of the markets, the public and protection of investors, denial to practice in the Commission renewed Bertuglia, commitment (Alvin et al., 2016). Nagdimov and Green's practice in the Commission was also suspended. Green could apply for reinstatement to the office of chief accountant after one year, while Nagdimov could apply after five years.

Overall, the three auditor's integrity and competence in regard to the Commission's processes as an engagement partner, is monitored and restored, as their reinstatement application could only be considered after each one and the company he is involved with is reviewed by PCAOB and that the assessment did not find any censures of or possible flaws in the organization. This condition identifies if the auditors or the firm neglects their duty and the necessary auditing standards. Also temporarily suspension ensures that should the auditors be considered in the future, then in practice of statutory duties which the Commission depends heavily in, will perform them diligently and with a reasonable degree of competence.

References

AICPA. (2018). American Institute of Certified Public Accountants. Retrieved from https://www.aicpa.org/forthepublic/disciplinaryactions/2018/green-john-w.htm

Alvin Arens, Randal Elder, & Beasley, M. (2016). Auditing and Assurance Services, Global Edition. New York: Pearson Education Limited.

Arens, A., Shailer Greg, & Best, P. (2011). Auditing, Assurance Services and Ethics in Australia: An Integrated Approach. Melbourne: Pearson Australia.