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.