Is it better to confess first and then seek forgiveness, or to seek forgiveness after getting caught? Most of us instinctively pick the former (at least in the abstract) and acknowledge the wisdom of Jiminy Cricket: "Let your conscience be your guide." But, when the tires hit the road, the "flight or fight" reflex can complicate our response in real time.
The verdict from federal and state regulators is unanimous and clear: Voluntary self-reporting and whistleblowing is greatly prized and rewarded in kind. For example, the Minnesota Board of Accountancy has an informal policy of looking with more favor on a CPA who self-reports licensing violations. There will still be a sanction, but likely with a considerable measure of leniency.
On another level, the SEC and the Public Company Accounting Oversight Board (PCAOB) have made it clear that they want early and voluntary cooperation, confessions, and whistle blowing against other audit team members. As the agency explains in this press release:
The PCAOB has published a formal statement concerning the benefits that may be available to registered public accounting firms and individuals who provide extraordinary cooperation in PCAOB investigations.
In the policy statement, the PCAOB describes the actions that may constitute extraordinary cooperation and how credit might be reflected for such cooperation. Extraordinary cooperation generally includes voluntary and timely action beyond compliance with legal or regulatory obligations and can be exemplified by particular actions taken alone or together, including:
Self-reporting violations before the conduct comes to the attention of the PCAOB or another regulator;
Remedial or corrective action to reduce the risk of similar violations recurring; and
Substantial assistance to the PCAOB's investigative processes or to other law enforcement authorities.
The PCAOB may provide credit for cooperation by reducing charges or sanctions in a disciplinary proceeding. The PCAOB also may provide language in settlement documents noting the cooperation and its effect. In exceptional cases, extraordinary cooperation could lead to no disciplinary action at all.
More insight was recently provided at a conference for the CPA defense bar in Washington, D.C., by the general counsel of a prominent CPA firm, who stated that it was his firm's policy to treat the SEC "like a client" (and not an adversary) upon becoming involved in an agency enforcement proceeding.
As always, the key is to make an informed decision -- as quickly as possible -- taking into account the panoply of considerations and possible outcomes. Seeking outside advice or legal counsel is well-advised.
