Inquiry into Auditors Misconduct: Challenges and lessons learnt

With the increasing cases of audit failures worldwide in recent years, the subject of professional misconduct has attracted the attention of a wide range of stakeholders such as regulators, public accountants and educators. Professional misconduct includes any conduct of a person, in relation to the carrying on of the business of his profession, which would be reasonably regarded by others in the same profession of good professional competence as calculated to destroy or lower public confidence in him, or as injuring the credit or standing of him in his professional capacity. His conduct need not be dishonest or fraudulent, nor need it involve any moral turpitude. It is enough if it brings discredit on him as a professional, or on his profession as a whole. A statutory or external auditor's conduct is governed by the professional and technical standards issued by the Accounting and Corporate Regulatory Authority (ACRA). Whilst news of disciplinary cases usually captured much media and public attention, very little has been written on the inquiry process to establish professional misconduct that provided the grounds for disciplinary decisions. There is currently a demand for suitably qualified accountants to serve as reviewers to investigate cases of professional misconduct. Besides accounting practitioners, accounting professors are also potential candidates for such an appointment, especially when complex accounting and auditing issues are involved. The objectives of this paper are to discuss the key challenges faced by reviewers in the inquiry process and the lessons that can be learned by regulators, reviewers, practitioners and accounting educators based on a real case (hereinafter referred to as AHL Ltd or AHL) on professional misconduct. The author was appointed as a reviewer to assist in the investigation of AHL by the Inquiry Committee of the Public Accountants Board (PAB) (the predecessor of the Accounting and Corporate Regulatory Authority). One of the primary tasks of the reviewers was to examine the audit working papers for evidence of professional misconduct. The inquiry commenced in 1997 and it was completed in 2002, when the High Court released its judgment following an appeal by the auditor against an 18 month suspension order by the PAB.