I Didn’t Do It on Purpose!
You are a senior staff member in the office of the Chief Accountant of the Securities and Exchange Commission (SEC).You have been supervising a case brought against an audit firm. The audit client used non GAAP accounting practices that allowed it to report annual earnings of $47.3 million instead of a loss of $15.0 million. Earnings in the preceding three years averaged $10 million per year. The auditor explains that this non GAAP accounting practice was not detected during the audit because of innocent mistakes made by staff auditors. Your thorough investigation has not turned up any evidence that the audit firm intentionally allowed the client to use this non GAAP practice. You must decide whether to formally sanction the audit firm or whether to Dr.op the case because of lack of evidence of wrongful intent. What should you do?