Auditing

PCAOB Brings First Action

The accounting industry regulator revokes the registration of a New York-based firm.
Stephen TaubMay 25, 2005

The Public Company Accounting Oversight Board took action against a public accounting firm for the first time since the PCAOB was created in 2003.

The accounting sheriff revoked the registration of New York-based Goldstein and Morris CPAs P.C. and barred its managing partner, Edward B. Morris, from associating with a registered accounting firm. The PCAOB found that the firm concealed information from the board and submitted false information in connection with a PCAOB inspection.

The board also censured two former partners of the firm, finding that they participated in the misconduct. However, the regulator went lightly on the duo because they “promptly alerted the PCAOB and cooperated in the board’s investigation.”

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“Registered accounting firms and their associated persons have a duty to cooperate,” said Claudius Modesti, director of the PCAOB’s Division of Enforcement and Investigations. The findings in this case, added Modesti, demonstrate that the PCAOB “will not tolerate conduct aimed at thwarting the Board’s inspections.”

The Goldstein and Morris firm was notified in September 2004 that the firm would be inspected by the PCAOB that November, the board elaborated.

At issue was a violation of the auditor independence rules of the Sarbanes-Oxley Act, and as part of the inspection, the regulator’s Division of Registration and Inspections directed a request for information and documents to the firm. The board found that in responding to the request, Edward Morris and two partners — Alan J. Goldberger and William A. Postelnik — were aware that the firm had prepared the financial statements of two of its public company audit clients, actions that run contrary to the auditor independence requirements of Sarbanes-Oxley.

PCAOB officials added that Morris, Goldberger, and Postelnik tried to conceal the conflict of interest by omitting certain information from the firm’s written response to the inspection request. According to the board, after learning of the imminent inspection, the firm’s partners “formulated and carried out a plan” to create and back-date certain documents and place them in the firm’s audit files.

Goldberger and Postelnik, however, notified the PCAOB of the omitted and falsified information, the board added, noting that both resigned from the firm.

Without admitting or denying the findings, the accounting firm and Morris consented to the findings and to an order that bars Morris from associating with a registered accounting firm and revokes the firm’s registration.

Firms that are not registered with the PCAOB are prohibited from auditing the financial statements of public companies.

Goldberger and Postelnik, without admitting or denying the findings, each consented to a board order that censured them for their actions.