John Thomas is a certified public accountant. He is the audit partner responsible for auditing the financial statements of Core Technology’s U.S. operations for the fiscal year ended December 31, 2010. During all times relevant to this case, Thomas was also a partner with Weiss and Associates, LLP. Core Technology, based in Frankfurt, Germany, is an international advertising and media services conglomerate with offices throughout the world. Kuhn and Dieter is Core Technology’s Frankfurt-based auditing firm and issues joint reports with Weiss and Associates, LLP. During the relevant period, Core Technology was a foreign private issuer whose American Depository Receipts were registered with the Securities and Exchange Commission and were listed on the NYSE.
Between October 2010 and May 2011, Thomas engaged in employment discussions with his audit client Core Technology to become the chief accounting officer of the U.S. subsidiary, responsible for the financial reporting Core Technology’s U.S. operations. During this period, he signed confirmations required by Weiss and Associates, LLP attesting that he had complied with the auditor independence rules. On March 4, 2011, Thomas informed the managing director of Core that he wanted to complete the year-end audit work before informing his supervisors. In early May 2011, Thomas learned that Core would be sending him an employment contract, so he asked the joint auditing firms Weiss in the U.S. and Kuhn in Germany to be removed from the Core audit on May 10.He accepted the Core offer on May 11. In a May 28 quality control review regarding his employment at Weiss, Thomas’ memorandum stated that Core has first approached him about possible employment in early May 2011 and that he promptly stopped working on the Core audit at that time. Kuhn and Dieter filed its Form 20-F for its fiscal year ended December 31, 2010, issued jointly with Weiss and Associates, LLP. The audit report included in the Form 20-Fstates that the firm of Kuhn and Dieter was independent and had conducted its audit in accordance with PCAOB standards.

Based on this scenario, what are the violations with respect to the auditing environment and what possible sanctions do you anticipate upon discovery by the SEC?

  • CreatedJanuary 21, 2015
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