Nothing can be more disquieting than a letter from your state board of accountancy saying that a client has filed a complaint against your firm regarding an engagement. Managing partners who receive such a notice immediately want to know what to do. Should they call the state board Official, call the client, review the engagement working papers or close up shop and call a travel agent?
While it is hoped that you never receive such a letter, some practitioners will be forced to deal with just such a set of circumstances. Today's external quality control environment consists primarily of a proactive approach through peer review and specific engagement reviews of government audits. However, state boards also play a crucial, though often-overlooked, role in peer review.
This article provides some background on the state boards' investigative function and outlines a course of action you should take to minimize the time and concern associated with state board investigations.
BOARDS AS INVESTIGATORS
Most CPAs are familiar with the state boards' responsibilities for continuing professional education reporting, CPA examination administration and the issuance of certificates and licenses; however, relatively few have experience with the state board as an investigative and judicial body.
State boards are responsible for overseeing the accounting profession in the public interest within their states. Part of that responsibility is investigating complaints from the public regarding CPA performance and behavior. The standards used to measure performance or behavior come from the provisions of the state accountancy act as well as from rules and regulations adopted by the state board as allowed under the state act. Performance measures are quite similar from state to state because most state legislatures relied heavily on the Model Accountancy Act when they developed their own accountancy acts.
Complaints against CPAs can come from a variety of sources, including clients; third parties such as federal, state and local governments; and other CPAs, especially successor accountants and auditors. Complaints can address many issues of a technical (accounting, auditing or tax), ethical (independence, proper professional behavior) or legal (violations of state or federal laws) nature. The state board must investigate each complaint to assess its merit and, if necessary, determine the appropriate corrective action.
Actions taken by state boards include requiring practitioners to take specific CPE courses to correct an apparent deficiency, directing CPAs to cease and desist certain behaviors and requiring CPAs to submit to some form of practice monitoring such as preissuance report reviews. On the more drastic side, state boards can either suspend or terminate an individual's or firm's license to practice or an individual's CPA certificate.
Before a state board requests more information, a complaint is reviewed for merit by a board-appointed investigator or technical consultant. If the investigator finds possible violations of the state accountancy act or board rules and regulations or is uncertain because of the lack of complete information provided by the complainant, the investigator will write or telephone you.
The initial contact is crucial because it will set the tone for the relationship between you and the investigator for the duration of the investigation. You can choose to be cooperative, which not only eases the tension involved in the situation but also speeds up an investigation. The state board's consideration of any penalties for your firm is likely to reflect the level of your cooperation. On the other hand, you can chose to be defensive or confrontational, attitudes that may decrease the chances the investigation will be resolved quickly and with minimal pain.
COMPLETING THE INVESTIGATION
Following a response to a board's letter, the investigator attempts to resolve the complaint. …