Pre-Dating & Back-Dating are Equally Risky

The SEC today suspended three accountants formerly of BDO USA LLP for improper professional conduct during its 2013 audit of AmTrust Financial Services Inc., an exchange-listed insurance company.

According to the SEC’s order, BDO fell behind schedule while conducting the audit and failed to complete necessary audit procedures before AmTrust’s deadline to file its annual report. To create the appearance that the audit was complete, the senior manager instructed the audit team to sign off on all work papers, regardless of whether work was finished, and to load signed blank or placeholder work papers in BDO’s electronic files. The audit team finished its audit procedures after the filing and preserved the predated sign-offs in BDO’s electronic files by overwriting existing documentation in the placeholder work papers.

The SEC identified the audit deficiencies and predated work papers by comparing BDO’s final, archived work papers to a snapshot of the work papers as they existed at the time that BDO released its audit report. The SEC’s order also found that if BDO’s engagement partner and engagement quality review partner had exercised due professional care, they would have identified these audit deficiencies before they released BDO’s audit report, which provided unqualified opinions on AmTrust’s 2013 financial statements and reporting controls.

The SEC’s order finds that the team violated auditing standards and engaged in improper professional conduct. Without admitting or denying the findings, each team member agreed to be suspended from appearing and practicing before the SEC as accountants, which includes not participating in the financial reporting or audits of public companies, for between one and five years.

The SEC has long since learned to read the metadata in electronic records. We are all under pressure to meet deadlines and complete projects, but meeting those deadlines is not more important than risking your reputation and career.

Additional Information

SEC Release
Administrative Order
Administrative Summary