To gain insight into the extent of malpractice in the State of California prior to the Passage of Sarbanes-Oxley, we examined the nature and magnitude of complains filed with the California Board of Accountancy (CBA) against both licensed and unlicensed accountants during the fiscal years 2000, 2001, and 2002. The CBA currently licenses and regulates over 73,000 licenses, with 1,431 complaints filed during the period reviewed. Disciplinary actions were taken against 283 different licensees for the three fiscal years reviewed. SEC issues were involved in 19 cases, theft or embezzlement 46 cases, public accounting malpractice 146 cases, improper retention of client records 11 cases, cheating on the CPA examination 9 cases, and miscellaneous other 52 cases. Over half of the complaints involved public accounting issues. Audit related complaints accounted for 48%, tax related complaints 36%, and compilations or reviews accounted for 16% of the complaints. These statistics were in line with the experience of the AICPA Professional Liability program. Within the above sections, the paper contains specifics with regards to the most common problems identified as a result of this work. While a number of interesting facts were discovered, one item of particularly interest was the significant number of claims that involved non-profit organizations. CBA administrators do not believe there is any greater tendency for non profit reporting versus for profit reporting, thus appearing to indicate this is just an area that has a greater possibility of accounting malpractice.
Elizabeth K. Jenkins, W. Donnelly, and T. Black. "Was the Accounting Profession Really That Bad?" Academy of Accounting and Financial Studies Journal (2007): 109-115.