Risk & Compliance

SEC Slaps CPA Firms for Not Registering

In several actions, the regulator goes after those do work for public companies without being on the PCAOB's list.
Stephen TaubJuly 30, 2008

The Securities and Exchange Commission took action against several small accounting firms and their principals, saying they audited public companies without having registered with the Public Company Accounting Oversight Board.

Each of the firms and individuals consented to the issuance of the SEC orders without admitting to or denying any of the findings.

In one case, the SEC censured CPA Ernest E. Dow and denied Los Angeles-based Choi Dow Ian Hong & Lee Accountancy Corp. the right to appear or practice before the commission as an accountant. In 2004, the SEC alleged, Dow and the company illegally conducted an audit of, and issued an audit report for, a public company. According to the SEC, the firm prepared and issued an audit report dated Dec. 2, 2004, in connection with its audit of Los Angeles-based VALCAPX Acquisition Corp., which reported no revenue and no assets for the fiscal years ended June 30, 2002, 2003, and 2004. The firm audited VALCAPX’s 2002, 2003, and 2004 financial statements. Dow, as engagement partner, participated in the preparation and issuance of the 2004 audit report, the SEC said, adding that Dow and the company can apply for reinstatement after one year.

The commission also censured Michael Deutchman, a Melville, N.Y.-based CPA,.alleging that he prepared and issued an audit report dated April 14, 2004, in connection with his audit of Cyber Grind Inc., based in Beverly Hills, Calif., whose common stock does not currently trade, and which reported no revenues and no assets for fiscal year ended Dec. 31, 2003. He was ordered to cease and desist from committing or causing any future violations.

Also, the SEC censured Jitendra S. Banker and denied Costa Mesa, Calif.-based Banker & Co. the privilege of appearing or practicing before the Commission as an accountant, with rights to apply for reinstatement after one year. That order said that they had conducted audits of, and issued audit reports for, three public companies in 2004, even though Banker & Co. was not registered with the PCAOB. The three companies were OTC Dreamwerks Inc., Morgan Clark Management Inc., and Mill Creek Research Inc.

Finally, the SEC censured Jay J. Shapiro and ordered Shapiro and his eponymous Los Angeles-based CPA firm to cease and desist from committing or causing any future violations. The order denied the Shapiro firm the privilege of appearing or practicing before the commission as an accountant, but allowed rights to apply for reinstatement after one year. According to the regulator, the Shapiro firm prepared and issued an audit report dated Jan. 12, 2004, in connection with its audit of Daleco Resources Corp., based in West Chester, Pa., whose common stock trades on the OTC Bulletin Board. Daleco reported $1.5 million of revenues and total assets of $25 million for the fiscal year ended Sept. 30, 2003.

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