SEC Charges Audit Engagement Partner with Improper Professional Conduct
ADMINISTRATIVE PROCEEDING
File No. 3-21361
April 6, 2023 - The Securities and Exchange Commission today instituted settled administrative and cease-and-desist proceedings against James Fitts, CPA for failing to follow Public Company Accounting Oversight Board ("PCAOB") auditing standards when he served as audit engagement partner on Tandy Leather Factory, Inc.'s ("Tandy") fiscal year 2018 audit ("2018 audit").
According to the SEC's order, during the 2018 audit, Fitts never obtained a sufficient understanding of the design or implementation of Tandy's manual system for valuing inventory. Fitts failed to: (1) obtain sufficient understanding of Tandy's internal control over financial reporting regarding inventory valuation, including to sufficiently evaluate the design effectiveness of those controls; (2) evaluate, respond to, and/or resolve inconsistent audit information; (3) sufficiently evaluate company-produced audit evidence; and (4) exercise due professional care, as required by the PCAOB.
Previously, in July 2021, the SEC instituted a settled cease-and-desist proceeding against Tandy and its former CEO, finding accounting, reporting, and control failures related to inventory that resulted in a multi-year restatement by Tandy. These failures stemmed in part from Tandy's use of a manual inventory valuation system that failed to properly track inventory on a first-in, first-out basis, which Tandy disclosed as a significant accounting policy. The manual system was a key source of information for the inventory figure that Tandy inaccurately reported in its financial statements.
Without admitting or denying the findings, Fitts consented to the SEC's order, which finds that Fitts engaged in improper professional conduct within the meaning of Section 4C of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 102(e)(1)(ii) of the Commission's Rules of Practice. The SEC's order also finds that Fitts was a cause of Tandy's violations of the reporting provisions of Section 13(a) of the Exchange Act and Rule 13a-1 thereunder. Fitts agreed to be suspended from appearing and practicing before the SEC as an accountant, with the right to apply for reinstatement after one year, and agreed to pay a $25,000 civil penalty.
The SEC's investigation was conducted by Kimberly Cain and Melvin Warren of the Fort Worth Regional Office, and was supervised by Sarah S. Mallett and Eric Werner.
Last Reviewed or Updated: April 6, 2023