Ernst and Young LLP has been adjudicated by the Public Company Accounting Oversight Board and a disciplinary action has been taken against the firm with penalty of $2 million has been imposed in the form for the disciplinary action. The disciplinary action has been brought against them on the ground that the accounting firm has violating the rules and regulation of the PCAOB. The disciplinary action taken by the board because the accounting firm was not maintaining the ethics in performing accounting of its client company i.e. Medicis Pharmaceutical Corporation. The accounting firm has been violating the rules and regulations and is not maintain the standard of accounting which has been implemented by the PCAOB before twenty years. The ethics of accounting says that the auditors should keep eye on each transactions in conducting audit of financial transaction in any company and shall ensure that the persons who are involved in financial fraud is caught. The auditors of the accounting firms shall bring out the exact financial position of the company but sadly this did not happen in the reality (Boone, Khurana & Raman,2014).
The board on investigation into the audits made by the firm of Medicis has found that the auditors and the accounting personnel failed to maintain the accounting standard as mention in the rules and regulation of the board and has failed in evaluating the true financial position of the client company. The investigation also put light on the facts that the firm has not maintain conformity to the provisions as laid down under the U.S Generally Accepted Accounting Principles. The board while investigating and enquiring an associate of the firm reveals that the accounting and book keeping procedures does not matches the standard and principles as laid down by the board i.e. PCAOB. The auditors also did not conform to the standards in declaring the firms budget. The accounting personnel or the auditors of the firm knowing that the following conducts were not ethical as per the accounting standard has acted in such a way which violates the principles of accounting (Su, 2015).
The board while inquiring into the firms accounting practice found that the auditors of the firms ahs violated the standard set by the board in accounting procedure and they failed to evaluate the key aspects of accounting transactions and affirms that they believe it to be true. The firms accounting practice and the auditors should always evaluate the transactions of the its client company from the view point of the investors so that each and every aspect of financial transactions can be captured and recorder in the accounting books. The director of the board analyzing the reports prepared by the firm in auditing its client company accounting books has failed to conform to the principles as laid down under GAAP (Fung, Raman, & Zhu, 2017).
Therefore, the board brought contentions of violating the provisions of the board and GAAP and started proceedings against the firm. The board decided to make the proceeding against the firm public which the firm did not want and asks the board not to make such proceeding in public which will hamper the reputation and goodwill of the firm. The board started its proceedings against the accounting firm and put censure and fines on the partners and members of the accounting firms. The board censured its partners from entering into accounting firms which are registered with the board and imposed civil penalties amounting from $25,000 to $50,000 (Beatty, Lu, & Luo,2016).
Therefore, the board has taken due steps to punish the violators of the ethical code of conduct for the accounting. Thus it is recommended that the board must conduct regular audits on the practices of the accounting firms. The commission has to bring more strict rules and regular investigate into the accounting procedures of the firm. The board should be more cautious relating to the accounting firms audit failures and audit independence violations. Rule 102(e) of the Commissions rule of practice which states that the accounting practitioners shall perform their statutory obligations diligently. The Commission has the delegated power to make rule which leaves them in an advantageous position to impose heavy penalty on the violators. Imposing heavy penalties on the violators will stop them from violating the provisions and the rules of the commission. Thus, by these manner the commission and track violations in the rules of accounting practices and make changes to that effect (Lee, 2016)
Beatty, R. P., Lu, H., & Luo, W. (2016). Market Failure and Reemergence: A Study of Chinese Firms Listed in the US.
Boone, J. P., Khurana, I. K., & Raman, K. K. (2014). Did the 2007 PCAOB disciplinary order against Deloitte impose actual costs on the firm or improve its audit quality?. The Accounting Review, 90(2), 405-441.
Fung, S. Y. K., Raman, K. K., & Zhu, X. K. (2017). Does the PCAOB international inspection program improve audit quality for non-US-listed foreign clients?. Journal of Accounting and Economics, 64(1), 15-36.
Kabir, H., Kabir, H., Su, L., Su, L., Rahman, A., & Rahman, A. (2016). Audit failure of New Zealand finance companies–an exploratory investigation. Pacific Accounting Review, 28(3), 279-305.
Lee, H. (2016). Financial reporting and audit failures in transition economy: examples of auditors in China's financial market. Law and Financial Markets Review, 10(1), 4-15.
Su, L. (2015). Do the auditors bear the consequences of corporate failures? The case of failed New Zealand finance companies (Doctoral dissertation, Auckland University of Technology).