Accounting Today - May 2012

BY PROF. EILEEN Z. TAYLOR AND JORDAN A. THOMAS
Blowing the
whistle without fear

AccountAnts — in-house, And internal and external auditors alike — often stand at the crossroads of corporate misconduct and play an important investor protection role. in fact, cPAs’ primary duty is to protect the public and act as independent watchdogs over publicly traded corporations.

however, after years of corporate scandals, it is apparent that the securities enforcement status quo has been inadequate. historically, when cPAs discovered attempted or actual fraud, client confidentiality rules limited their ability to publicly report their observations. With the advent of dodd-Frank, accountants no longer need to choose between doing the right thing and risking the loss of their professional licenses.

Arguably the most sweeping financial reform effort since the Great depression, dodd-Frank required the securities and exchange commission to establish a whistleblower program offering significant employment protections and monetary awards to individuals, including accountants, who report possible violations of the federal securities laws. This program demonstrates the federal government’s commitment to valuing and encouraging citizen cooperation in rooting out fraud.

Because of their access and knowledge, accountants are in an ideal position to provide their clients and the sec with early and invaluable assistance in identifying the scope, participants, victims and ill-gotten gains associated with corporate wrongdoing. With their help, more violations will be detected and violators will be stopped earlier.

RESPONSIBILITIES

The Public company Accounting oversight

Eileen Z. Taylor, Ph.D., CPA, is an assistant professor of accounting at North Carolina State University, and currently teaches accounting information systems and fraud examination. Jordan A. Thomas is a partner at Labaton Sucharow LLP and chairs its whistleblower representation practice. He is also the editor of SECWhistleblowerAdvocate.com.

Board regulates external auditors of publicly traded companies, and establishes the related professional standards. For all other engagements, there exists a patchwork of regulation, including states’ rules and standards, the American institute of cPAs’ code of Professional conduct, and Generally Accepted Auditing standards. The overarching principle of these guidelines is that auditors are required to act with integrity and fulfill their responsibilities to the public.

specifically, under the sarbanes-oxley Act and other guidelines, auditors are required to report significant securities violations to the client’s audit committee or full board of directors. if the client refuses to properly account for or disclose the fraud, auditors should issue a qualified or adverse opinion, and then withdraw from the engagement if the client refuses to accept the opinion.

YOUR RIGHTS TO WHISTLEBLOW

With few exclusions or qualifications, any individual or group of individuals, regardless of citizenship, can report a possible securities violation that has occurred, is ongoing, or is about to occur. Accountants are specifically authorized to participate and anyone may report violations anonymously if represented by counsel.

under dodd-Frank, employers and accounting firms may not retaliate against accountants who, in good faith and according to the program’s rules, provide information to the sec. in the event of retaliation, there are significant remedies, including re-instate-ment with equivalent seniority, two times back pay with interest, attorney fees, and other related expenses. dodd-Frank also requires the sec to pay monetary awards — between 10 and 30 percent of the total monetary sanctions collected — to eligible accountant whistleblowers who voluntarily provide original information leading to an enforcement action in which the agency obtains at least $1 million in sanctions.

An accountant whistleblower may receive a monetary award if:

;The violation was discovered through an
audit of a company’s financial statements and
there is a reasonable basis to believe that: The
disclosure is necessary to prevent substantial
injury to the entity or investors; the entity’s
conduct will impede an investigation of the
misconduct; or the submission would not
otherwise be contrary to the requirements
of section 10A of the exchange Act. in assess-
ing whether a submission is contrary to the
requirements of section 10A, the sec may
consider: whether the audit firm conducted
an inquiry into the possible violation and the
quality of that inquiry; the response to the al-
legation and whether the audit firm followed
the requirements of section 10A; the position
and role the individual played in the audit
firm’s violation; the role of the whistleblower
in the inquiry; and the timing of the whistle-
blower’s submission.