Disciplinary Actions and Sanctions of CPAs

In addition to the traditional "information-based" approach, JICPA adopts a "complaints-based" approach to investigate potential misconduct by auditors. Complaints-based actions are taken when JICPA receives a complaint against a member from another member or from the public. JICPA has been formally collecting complaints about audits from members and the public since November 2005. These complaints may be related to not only statutory audits required under the Financial Instruments and Exchange Act or Companies Act, but also statutory audits for schools and certain not-for-profit organizations.

Information collected through various measures is first reviewed by the Audit Practice and Review Committee. The Audit Practice and Review Committee consists of 15 members and includes Deputy Presidents, Executive Board members and Council members. The duties of the Audit Practice and Review Committee are:

• to investigate the performance of audit engagements and appropriateness of auditors' opinions, and provide the Chairman and President with the committee's opinion on recommendations or instructions to be issued to the members concerned as appropriate;
• to investigate the performance of audit engagements and appropriateness of auditors' opinions, and make recommendations to the Chairman and President whether the Special Investigative Committee on Audit Issues should be formed or not;
• to investigate cases relating to ethical matters and provide the Chairman and President with the committee's opinion on recommendations or instructions to be issued to the members concerned;
• determine if further examination of the case by the Disciplinary Committee is necessary and request the Chairman and President to further examine the case concerned where appropriate;
• report to the Chairman and President on any significant matters in terms of the quality control system of an audit firm identified during investigations.

When the Chairman and President requests the Disciplinary Committee to further investigate cases based on the determination of the Audit Practice and Review Committee, the Disciplinary Committee starts its own investigation as to whether there is any violation of laws and regulations, or breaches of the JICPA Constitution and Regulations, and determines sanctions to be imposed. The Disciplinary Committee consists of seven members: five CPAs and two members outside of the profession. The investigation and discipline structure is independent of the Chairman and President, Deputy Presidents, the Executive Board and the Council. The Disciplinary Committee organizes investigative task forces on each case to investigate complaints and administers disciplinary actions separately from the task forces. The task forces consist entirely of JICPA members. CPAs are subject to inquiry and are required to report and submit necessary materials to the Disciplinary Committee. Disciplinary sanctions are as follows: a) a reprimand, b) a suspension of member rights for a certain period, and c) a request to the FSA to revoke the CPA's qualification or to order the dissolution of the audit corporation and other sanctions stated in the CPA Act.

When a member is not satisfied with the decision of the Disciplinary Committee, they are entitled to appeal to the Appeals Committee. The Appeals Committee consists of five members: three CPAs and two members outside of the profession. None of them are members of the Disciplinary Committee and are expected to make an impartial decision.