Violation by Mendoza, Berger & Company,

RFID Card Frauds

Public Company Accounting Oversight Board barred Henry Mendoza from being associated person of registered public accounting firm.

The Board found that Mendoza, the managing partner of the formerly registered firm Mendoza, Berger & Company, LLP, failed to cooperate in a Board inspection and in a Board investigation in violation of PCAOB rules. The Board also found that Mendoza violated PCAOB auditing standards related to audit documentation. According to the Board’s order, when Mendoza learned of an upcoming Board inspection, he announced in a firm-wide meeting that the work papers for the relevant audits needed to be “cleaned up” prior to the inspectors’ arrival. He instructed staff members to fill out audit programs that had not been completed at the time of the audit and directed changes to work papers, including backdating them to the time of the audit. Mendoza did not advise Board inspectors of the changes to the work papers and did not comply with standards for documenting the changes.

Later, after the Board commenced an informal inquiry, Mendoza directed additional modifications to work papers, including backdating them. These documents were provided to the Board’s Division of Enforcement and Investigations during the informal inquiry and then again after the Board commenced a formal investigation of the firm. Again, Mendoza did not inform the Board’s staff of the changes or comply with standards for documenting the changes.

Violations by Dean Dorton Allen Ford

auditor integrity

Public Company Accounting Oversight board imposed civil penalty on the Public Accounting firm for violating the auditor independence rules.

Dean Dorton Allan Ford (DDAF) prepared the financial statements for a broker-dealer audit client for the year ended December 31, 2012. As a result, the Firm was not independent of the Broker-Dealer under auditor independence criteria established by the Securities Exchange Commission and made applicable by Exchange Act Rule 17a-5(f)(3) to audits of brokers and dealers.

The Firm nevertheless audited the financial statements and issued an audit report that the Broker-Dealer included with the financial statements it filed with the Commission. In the audit report, the Firm represented that the audit had been performed in accordance with Generally Accepted Auditing Standards (“GAAS”).

Because GAAS requires independence, however, that representation violated Rule 17a-5(i), which required the audit report to state whether the audit was made in accordance with GAAS

Financial Statement Frauds in Indian Technology Sector

financial statement frauds

financial statement fraudsFinancial Statement Frauds in the Information technology sector are here to stay. In the year 2009, Indiaforensic published the research on termed as ” Early Warning Signals of Corporate Frauds” which identified that more than 1200 Indian listed companies could be indulging into financial statement frauds. Refer TOI Article here

Post this research, Indiaforensic also announced the Certification for the Information technology sector in forensic accounting, discussed the techniques of financial statement frauds in the Information technology sector.

This study material discussed the frauds comitted by the companies like DSQ Software, Satyam and manipulations by Educomp. Ambit Capital which released the report on IT sector speaks about the accounting tricks is interesting one. Here are 7 companies which needs attention of the investors according to the Ambit Research. Though some IT companies may consider it as problematic some may not find substance in the findings of the research.

  1. Geodesic – Manipulated the debtors to boost the revenues
  2. Educomp – Created the special purpose vehicle to transfer the receivables
  3. Financial Technologies – Apart from the NSEL fiasco, Financial Technology subsidiaries is found to be not presenting the consolidated financial statements boosting the standalone results of FT alone.
  4. Rolta India – Revaluation of the land coinciding with the change in depreciation policy is an attempt to boost the networth.
  5. Tech Mahindra – The company donot report the figures in US GAAPs may be a problematic area.
  6. Infosys – Corporate governance issue due to re-induction of N.R. Narayanmurthy on Infosys board along with the Rohan Murthy as the executive assistant.
  7. KPIT Cummins – The company excludes the income and expenses both from the revenues of the company boosting the margins by 50 basis points

It is important to understand these techniques in depth before taking the decision of the investments in the IT sector.





Audit inefficiencies to be observed by the forensic auditors

audit inefficiencies

March end is close and many of the firms would be preparing for the finalisation of the accounts. Auditors are likely to visit their places and another profit making year would be awaiting investors. But some times the financial statements are cooked and the auditors are dragged into investigations. This article provides top five audit inefficiencies which results in to the forensic audits by the banks, financial institutions or the regulators. Continue reading