Two accounting firms that were involved in the audit of financial statements of a company whose CFO has been charged with fraud face an SEC administrative hearing to determine if they engaged in professional misconduct in audits that the SEC said showed severe problems. That came as the agency alleged that Karl Redekopp, former CFO of International Commercial Television, helped the company turn millions of dollars of quarterly losses into profits by falsely accounting for sales of a skin-care appliance via Home Shopping Network infomercials.

The agency said ICTV reported sales of Derma Wand, a skincare applicant that supposedly reduces wrinkles and improves skin care appearance, even though the products sat unsold in the company's warehouse. Besides charging Redekopp with fraud, the SEC also settled charges against the company

The firms facing the hearings are Dohan+Co., a Miami-based CPA firm, which audited ICTV's financial statements for the financial years 2004 through 2007 and Davidson & Co., a Vancouver, B.C.-based firm which performed field work on audits and reviews during that period. The professionals  subject to the hearings are Steven Dohan, managing director of Dohan + Co. and concurring partner on the audits and reviews, and Nancy L. Brown, who was engagement partner and a director at Dohan until recently. Both are CPAs licensed in Florida. Also facing possible SEC sanctions is Erez Bahar, a chartered accountant and principal of Davidson & Co., who performed the field work.

The SEC alleges the accountants' actions caused Dohan to issue an unqualified audit report for ICTV's 2007 Form 10-K/SB that falsely stated that the audit had been conducted in accordance with the PCAOB's auditing standards and that ICTV's financial statements were fairly reported in conformity with Generally Accepted Accounting Principles. The SEC complaint cited a laundry list of failures that allegedly occurred.

In October 2008, ICTV said it would restate results for two quarters of fiscal 2007, which lead to a $2.2 million revenue reduction. In March this year, a new outside auditing firm, hired in 2009, found more revenue recognition errors. As a result, the restated bottom line for fiscal 2007 and the first two quarters of fiscal 2008 went from just over $1.8 million in net income to slightly more than $2.1 million in losses.

Major problems included sales via Home Shopping Network in which the companies had a drop-shop contract under which HSN didn't guarantee purchase of products and ICTV retained ownership until they were shipped to customers. HSN was also allowed to return products until 60 days after end user purchases. These sales, however, were often recognized as revenue.

The SEC stated that Bahar and Brown were unaware of GAAP guidance in some areas, failed to perform adequate testing in others and that Bahar was never on site with the senior accountant and missed irregularities that person found. Nor had Brown visited the client's or Davidson's offices. Moreover, working papers showed inventory counts were not performed and inconsistencies were not resolved and Steven Dohan knew about these. The SEC cited one case in which revenue working papers showed cash for a $990,000 sale to HSN had been received while the accounts receivable working papers showed that amount as outstanding.

 


Bob Scott
Bob Scott has provided information to the tax and accounting community since 1991, first as technology editor of Accounting Today, and from 1997 through 2009 as editor of its sister publication, Accounting Technology. He is known throughout the industry for his depth of knowledge and for his high journalistic standards.  Scott has made frequent appearances as a speaker, moderator and panelist and events serving tax and accounting professionals. He  has a strong background in computer journalism as an editor with two former trade publications, Computer+Software News and MIS Week and spent several years with weekly and daily newspapers in Morris County New Jersey prior to that.  A graduate of Indiana University with a degree in journalism, Bob is a native of Madison, Ind
Last modified on Sunday, 02 June 2013
Read 4483 times
Rate this item
(0 votes)

Visit other PMG Sites:

Template Settings

Color

For each color, the params below will give default values
Tomato Green Blue Cyan Dark_Red Dark_Blue

Body

Background Color
Text Color

Header

Background Color

Footer

Select menu
Google Font
Body Font-size
Body Font-family
Direction
PMG360 is committed to protecting the privacy of the personal data we collect from our subscribers/agents/customers/exhibitors and sponsors. On May 25th, the European's GDPR policy will be enforced. Nothing is changing about your current settings or how your information is processed, however, we have made a few changes. We have updated our Privacy Policy and Cookie Policy to make it easier for you to understand what information we collect, how and why we collect it.
Ok Decline