The action stemmed for a 2010 inspection of the audit of the 2009 financial reports of a client company whose name was not given in PCAOB documents. The findings show that Hotz, the engagement partner, supervised Manohar, the engagement manager, and both supervised Fadner during the preparation for the PCAB inspection.
On Dec. 3, 2010, accountants discovered that an engagement letter with an original client signature and a cashflow worksheet were missing from audit documentation and decided to create them and add these to the hard copy workpapers. Fadner created the worksheet and dated in March 6, 2010. After the engagement letter was received from the client on December 10, it was also placed in the files. The three were also involved in creating a Fair Value Memorandum that was added to the workpapers.
Hotz signed three Quarterly Release Records and added them to the workpaper file without dating them and initialed 11 other documents on December 5 without dating them or explaining why they were initialed after the document completion date, among other changes that were made. On Nov. 29, 2010, Hotz submitted an Engagement Profile to the PCAOB inspectors that swore that no changes had been made to documents after completion of the audit. After he was asked to revise the Engagement Profile, Hotz submitted one to the board's inspection division that again stated that no changes had been made.