Professional inspection: resist the urge to “tidy up” before your inspector’s visit
You have found out that your firm will be visited by an inspector in the coming months. Your first instinct is probably to make sure everything is in order so that you have nothing to worry about.
However, you need to tread carefully. While organizing your files properly can facilitate the inspection process, there are things you must avoid doing. Otherwise, you could end up in a predicament.
Altering your files before the inspection: a serious mistake
It can be tempting to add missing signatures or documents or adjust dates. Be aware that these actions can have far more serious consequences than handing over imperfect files to the inspector.
As a case in point, the Disciplinary council has penalized1 three CPAs in recent years for altering their assurance engagement files in the following ways:
• Forging clients’ signatures on engagement letters, representation letters or journal entries, or having clients sign backdated documents prior to the inspection;
• Changing the contents of files;
• Altering or adding documents or information in files;
• Involving employees of the firm, in whole or in part, in falsifying files.
It comes as no surprise that the Disciplinary council found these infractions a serious offence, as it goes against the values and the spirit of the profession. This type of behaviour undermines the proper functioning of an important public protection mechanism and erodes public trust in the profession. There is a heavy price to pay for such conduct:
- Disciplinary complaint: Showing a lack of integrity is a serious offence and usually results in a complaint to the Disciplinary council.
- Penalties: According to legal precedents, the offending CPA risks being struck off the roll for one to four months and being assessed a fine of up to $25,000.
- Public ruling: Rulings as to guilt and sanctions are made public on CanLII, SOQUIJ and in the CPA Newsletter, which is sent out to 45,000 CPAs and future CPAs in Quebec.
- More rigorous monitoring: In the eyes of the Order, an offending firm is more likely to commit a subsequent offence than other firms so it will receive inspection visits at shorter intervals.
Additionally, your team members and interns may question your ethics and your competency, or they may even interpret your way of preparing for an inspection as being correct. Further, if you approach clients to sign or alter a document after the fact, they are likely to question your competency and integrity.
Conversely, by being forthright, you will be entitled to a confidential process and the guidance of the inspection services, which will help you to improve the quality of your files. Depending on the situation, certain measures may be taken, such as:
- Action plan: you may be required to submit an action plan to the Order outlining the remedial measures you will take to avoid repeating your mistakes.
- Re-inspection: you may be re-inspected so that the Order can confirm that you have implemented the remedial measures.
- Supervision: your files may be reviewed by a CPA appointed by the Order, either before or after the certification or compilation reports have been signed.
Prevention: the best way to avoid problems
The best way to prepare for an inspection visit is by focusing on prevention. Here is some useful advice:
- Every year, the Order publishes a report detailing the weaknesses frequently reported during inspections. Reading it will provide you with some excellent ideas for improving your processes.
- Before accepting an engagement, take into consideration your knowledge of the client’s industry, the availability of your experienced staff, the availability of outside resources and the risk level.
- Appoint an engagement quality control reviewer to evaluate completed work or have an expert revise the relevant sections before preparing a report.
Even if the prospect of an inspection is stressful and you want to make a good impression, handling this process with integrity and transparency is the best course of action.
You should also be aware that, if you are subject to a syndic’s inquiry, you must adhere to the same principles of transparency and integrity. Do not alter documents or an engagement file, as this could have serious consequences.
1 2019 CanLII 15773 (QC CPA), 2021 QCCDCPA 8 (CanLII) and 2021 QCCDCPA 26 (CanLII)