It began in college, continued in law school, and still exists today, my fascination with court and disciplinary opinions that provide an inside view of something the involved parties would rather had never come to light. The most recent one is a PCAOB disciplinary order involving an accountant who worked for KPMG.

The individual, who isn’t a CPA, began working for KPMG in November, 2002, and from May, 2004, until November 28, 2006, was a member of audit engagement team for a public company specializing in communications, first as an associate and then as the lead senior on the year-end audits and quarterly reviews. Per PCAOB rules, she is considered an “associated person” of KPMG.

In November 2005, when she was participating in the KPMG review work for the quarter ended October 31, 2005, the accountant gave an acquaintance a $5,000 check to purchase stock in the audited company. Although she knew the check was deposited, she never saw any documentation that the acquaintance had purchased the stock for her.

In May of 2006, she acknowledged to KPMG that she was in compliance with its independence policies and PCAOB independence requirements for the period April 1, 2005, through March 31, 2006. Later in 2006, following a KPMG internal investigation prompted by an anonymous tip, she admitted to providing the $5,000 check for the purchase, and KPMG terminated her employment. The public company in its Form 10-Q for its FY2007 first quarter ended October 31, 2006, filed with the Commission on December 4, 2006, disclosed that KPMG advised it in November, 2006, that it believed that a KPMG accountant who worked on the audit engagement made an investment in its common stock.

The November 14th PCAOB order, after detailing what happened, barred the accountant from being an associated person of a registered public accounting firm. Pursuant to PCAOB rules, after one year, she may file a petition, for reinstatement as an associate with a registered public accounting firm.

I found the order fascinating, especially what seemed entirely obvious: that the accountant “understood at the time she gave the acquaintance the $5,000 check that owning stock in an audit client was a violation of independence rules.”
Equally fascinating the company ended up disclosing on its 10-Q the violation of the independence rules by a member of the audit team.

The copy of the PCAOB is at pcaobus.org/Enforcement/Disciplinary_Proceedings/index.aspx

-------------------------Comment on earlier column -------------------- The text that follows is from an two e-mails I received commenting on my column from last week entitled “Are There Retreats for Sole Practitioners?”

In a way some of us do.  We attend the I.R.S. forums and that gives us a chance to meet with others in our practice.  I was in this industry for the past 24 years and I can tell you that in the past I felt alone but, now I have aligned myself with others in the business and feel that I have a support system in place.  As sole practitioners, we sometimes are pitted against others that half heartedly practice tax prep and only do it for the money, as some of us do it for the love of the people and their problems.  We travel in this group and feel that we can stand whatever comes along.  Persons who practice tax prep need this social circle and we need to be more understanding of the business and share our knowledge.  There are enough clients to go around.  In my area alone within 10 city blocks there are four businesses that file taxes and none of us are lacking for clients.  I do not find that we compete as we do different types of clients.

Thanks for the article maybe someone will do as we have and find comfort and friendship.

Carla Estrada, C&R Income Tax & Notary, Houston, Texas
I have been a sole practitioner for 30 years. Big organizations and I just don't mix, my 8 years in the Army Reserves notwithstanding. Over  the last 5 years or so, I have been talking to other practitioners more and more, about practice issues, software, client independence issues, all kinds of topics. The other day I chatted with a sole practitioner's staff accountant who was trying to arrange a partial buyout of the owner's practice. The owner is in his late 60s, and the staff CPA is 45. the staffer didn't want to wind up as a partner with another long time staffer. Letting go is obviously a problem for the owner. I hope things work out well for both parties.

I don't know if retreats are the best platform for sole practitioners. My perception is that they are probably unwilling to discuss their problems openly with others whom they don't know, or are perceived as competitors. Building a network of contacts has helped my business, helped my fellow practitioners, and helped our clients. It is a model not to be underrated. It fosters the atmosphere of trust practitioners need to begin to to discuss topics like continuation agreements and practice purchase terms.

William McGovern CPA
Manasquan, NJ


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