Bernard S. Schwartz

In a professional discipline proceeding arising from four annual audits of a large construction group, the Panel found extensive failures to comply with auditing standards in client acceptance, audit planning, fraud risk assessment, professional skepticism, materiality, related-party procedures, internal controls, contract testing, marketable securities testing, covenant analysis, and reporting.

One respondent was also found to have failed to exercise due care when accepting the engagement despite serious warnings from the predecessor auditor concerning suspected fraud and scope limitations.

Applying the balance of probabilities standard, the Panel held that the evidence of the applicant’s expert established professional misconduct under Rules 202.1 and 206.1, except for one narrowly worded allegation concerning signatures on a management representation letter.

The Panel then applied the Anthony-Cook public interest test and, although expressing significant reservations, accepted joint submissions imposing fines, publication, compliance consequences, and substantial costs.