Winter 2004-10 Federal rules for the removal of accountants who audit financial institutions

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Number 54
Winter 2004

Federal rules for the removal of accountants who audit financial institutions

The Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System and the Office of Thrift Supervision have jointly promulgated final rules for the removal, suspension or debarment of accountants and accounting firms that perform audit and attestation services for depository institutions with insured deposits.

The rules went into effect on October 1, 2003.

Grounds

The rules list the following grounds for such action:

The accountant lacks the requisite qualifications to perform audit services.

Has knowingly or recklessly engaged in conduct that results in a violation of applicable professional standards, including conflicts of interest.

Has engaged in negligent conduct.

Has knowingly or recklessly given, or participated in giving, false or misleading information.

Has engaged in, or aided and abetted, a material and knowing or reckless violation of a federal law or regulation.

Has been suspended or debarred from practice by state or federal banking, insurance or securities regulators.

Is suspended from practice as an accountant by a state authority.

Accounting firms

If the federal supervisory agency determines that there is good cause for the removal, suspension or debarment of a member or employee of an accounting firm, it may also take similar action with respect to the firm as a whole, based on:

the gravity, scope, or repetition of the action;

the adequacy of, and adherence to, applicable policies, practices and procedures for the firm's conduct of its business and performance of its audit services;

the selection, training, supervision and conduct of members and employees of the firm, involved in the performance of audit services;

the extent of senior members' participation;

the extent to which the firm has since implemented corrective internal controls to prevent recurrence.

Immediate action

Although the separation or suspension process normally calls for a hearing, if requested by the affected party, the federal supervisory agency may act without one in order to protect the public interest.

The affected party may file a petition for a stay of the summary order, which is to be followed by a hearing. A decision must be rendered within 30 days, after which the accountant or firm may appeal.

Reinstatement

The rules also provide a procedure for an affected accountant or firm to request reinstatement. The person seeking reinstatement must prove the grounds asserted in support of the petition.


© 2004 Goldman Antonetti