UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
SECURITIES EXCHANGE ACT OF 1934
Release No. 63740 / January 20, 2011
ACCOUNTING AND AUDITING ENFORCEMENT
Release No. 3232 / January 20, 2011
ADMINISTRATIVE PROCEEDING
File No. 3-13997
In the Matter of
DOHAN + COMPANY CPAs,
STEVEN H. DOHAN, CPA,
NANCY L. BROWN, CPA, and
EREZ BAHAR, CA,
Respondents.
ORDER MAKING FINDINGS AND
IMPOSING REMEDIAL SANCTIONS
PURSUANT TO SECTION 4C OF THE
SECURITIES EXCHANGE ACT OF 1934
AND RULE 102(e) OF THE COMMISSION’S
RULES OF PRACTICE AS TO DOHAN +
COMPANY CPAS, STEVEN H. DOHAN,
CPA, AND NANCY L. BROWN, CPA
I.
In these proceedings, instituted on August 9, 2010 pursuant to Section 4C of the Securities
Exchange Act of 1934 (“Exchange Act”) and Rule 102(e)(1)(ii) of the Securities and Exchange
Commission’s (“Commission”) Rules of Practice, Respondents Dohan + Company CPAs (“Dohan
+ Co.”), Steven H. Dohan (“Dohan”), and Nancy L. Brown (“Brown”) (collectively
“Respondents”) have submitted Offers of Settlement (“Offer”) which the Commission has
determined to accept.
II.
Solely for the purpose of these proceedings and any other proceedings brought by or on
behalf of the Commission, or to which the Commission is a party, and without admitting or
denying the findings herein, except as to the Commission’s jurisdiction over them and the subject
matter of these proceedings, which are admitted, Respondents consent to the entry of this Order
Making Findings and Imposing Remedial Sanctions Pursuant to Section 4C of the Securities
Exchange Act of 1934 and Rule 102(e) of the Commission’s Rules of Practice as to Dohan +
Company CPAs, Steven H. Dohan, CPA, and Nancy L. Brown, CPA (“Order”), as set forth below.
III.
On the basis of this Order and the Offers of Respondents Dohan + Co., Dohan, and Brown,
the Commission finds1 that:
A. SUMMARY
1. These proceedings arise out of Respondents’ improper professional conduct during
their audit of International Commercial Television, Inc.’s (“ICTV”) 2007 financial statements.
During fiscal year 2007, ICTV improperly recognized revenue and incorrectly recorded product
returns, resulting in a material overstatement of revenue and net income. Respondents’ audit of
ICTV’s 2007 financial statements failed to comply with numerous Public Company Accounting
Oversight Board (“PCAOB”) auditing standards. These included failing to demonstrate the
required level of proficiency, failing to exercise due care and professional skepticism, failing to
obtain sufficient evidential matter, failing to plan the audit, and failing to supervise the audit staff.
As a result, Respondents Dohan and Brown and others caused Respondent Dohan + Co. to issue an
unqualified audit report for ICTV’s 2007 Form 10-K/SB that incorrectly 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
(“GAAP”). Respondents’ conduct, as further described below, constituted improper professional
conduct within the meaning of Rule 102(e)(1)(ii) and (iv) and Section 4C of the Exchange Act.
B. RESPONDENTS
2. Dohan + Company CPAs is an accounting and auditing firm based in Miami,
Florida. The firm provides services to public companies registered with the Commission and has
been registered with the PCAOB since October 2003. The firm conducted audits of ICTV’s
financial statements for the years ended 2004, 2005, 2006, and 2007. As auditor, Dohan + Co.
issued a report stating that ICTV’s financial statements were prepared in conformity with GAAP
and that Dohan + Co. had conducted audits in accordance with the PCAOB’s standards.
3. Steven H. Dohan, CPA, age 63, is a resident of Miami, Florida. Dohan is the
founder and managing director of Dohan + Co. and was the concurring partner on the ICTV audits
and quarterly reviews during the relevant period. Dohan is a Certified Public Accountant licensed
in Florida.
4. Nancy L. Brown, CPA, age 58, is a resident of Miami, Florida. Until recently,
Brown was a director at Dohan + Co. and was the engagement partner on the ICTV audits and
quarterly reviews during the relevant period. Brown is a Certified Public Accountant licensed in
Florida.
1 The findings herein are made pursuant to Respondents’ Offers of Settlement and are not binding on any other
person or entity in this or any other proceeding.
2
C. RELATED PARTY
5. International Commercial Television, Inc. is a Nevada corporation headquartered
in Bainbridge Island, Washington. Founded in 2001, the Company sells health and beauty
products internationally via infomercials and through various televised shopping networks.
ICTV’s common stock is registered under Section 12(g) of the Exchange Act and is quoted on the
Pink Sheets under the symbol “ICTL.”
D. FACTS
ICTV’s Improper Revenue Recognition
6. ICTV is a marketer of consumer retail goods, specializing in “fountain of youth”
health and beauty products it owns or holds the right to sell. ICTV’s best-selling product is the
Derma Wand, a skin care appliance that purportedly “reduces fine lines and wrinkles and improves
overall skin appearance.”
7. ICTV sells product through two main channels: (1) direct sales to end users via
infomercials produced by ICTV (“direct sales”), and (2) distribution through third-party
distributors for sell-through to end users. ICTV’s distributors include televised shopping networks
such as the Home Shopping Network (“HSN”).
8. Over a six-quarter period from early 2007 and continuing into 2008, ICTV
improperly recognized revenue on sales through HSN. In addition, ICTV failed to properly record
revenue, and estimate and account for returns, for product sold through its direct sales channels.
9. ICTV began selling product through HSN in 2007, predominantly through a “drop-
ship” contract entered into between ICTV and HSN in or about May 2007. Under the drop-ship
contract, HSN did not purchase the product itself, but instead facilitated sales to HSN’s customers
(i.e., the end users). Generally, HSN sent ICTV written requests to pre-order product that would
be sold during future HSN television broadcasts. ICTV retained title to the product until HSN sold
the product on-air to its customers and the product was shipped to the end users. HSN did not
guarantee the purchase of any product, and any unsold product remained under the ownership of
ICTV. The contract also allowed HSN to return any product from its customers up to 60 days after
delivery to the customer.2
10. Despite these contractual provisions governing sell-through and right of return,
ICTV recognized revenue in most cases upon HSN’s order of the product, before HSN sold
through to its customers and before the right of return expired. In some instances, ICTV also
recognized revenue without a corresponding written request from HSN. In those cases, ICTV
booked HSN sales upon alleged confirmation from its third-party fulfillment warehouse that
product had been physically segregated for HSN’s use.
2 ICTV also sold product directly to HSN under the terms of a separate, “traditional” contract, in which HSN issued
a purchase order, retrieved the product, sold the product to end users, and paid ICTV after the sell-through.
However, only the first HSN sale was made per the terms of the traditional contract. All other sales were made per
the drop-ship arrangement.
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11. ICTV failed to ensure that HSN sold through the units booked by the end of the
quarter, resulting in a mounting accounts receivable balance with each successive HSN order. This
accounting treatment violated multiple revenue recognition criteria under Generally Accepted
Accounting Principles (“GAAP”).
12. In addition to prematurely recognizing revenue on sales through HSN, ICTV also
booked revenue in 2007 on a product that failed an HSN quality control inspection and was never
sold through HSN. The purported sale remained on ICTV’s books through the 2007 audit and was
not reversed until ICTV issued a restated Form 10-K/SB in March 2009.
13. In total, ICTV booked seven HSN sales in 2007 totaling $2.8 million. This figure
was reported in ICTV’s trial balance and ultimately reported by ICTV in its 2007 Form 10-K.
Respondents’ working papers state that the auditors tested the HSN sales and traced certain of the
sales to ICTV’s sales journal, which in turn showed the amount that ICTV booked as revenue.
14. Each HSN sale recognized for 2007 was improperly recognized, resulting in a
material overstatement of revenue for ICTV’s fiscal 2007.
15. ICTV also failed to properly record revenue on its direct sales. ICTV provided its
direct sales customers a 30-day free trial period whereby the customer could try the ordered
product prior to purchase, and billed customers upon expiration of the 30-day period. Despite this
provision, ICTV recognized revenue upon shipment of the product, and before expiration of the
trial period, in violation of GAAP. ICTV also failed to properly estimate and record product
returns on direct sales.
16. Over the course of the six-quarter period, ICTV filed periodic reports with the
Commission on Forms 10-Q and 10-K. As a result of the improper accounting discussed above,
ICTV reported materially inflated revenue and net income to investors and to the Commission.
ICTV’s Restatement
17. In October 2008, ICTV announced that it intended to restate its financial statements
for the fiscal year ended 2007 and the first two quarters of 2008 as a result of improper revenue
recognition. ICTV filed its restated Form 10-K/A for fiscal year 2007 on March 31, 2009. The
restatement resulted in a $1.4 million reduction in 2007 revenue related to the HSN errors, and an
$840,000 reduction in 2007 revenue related to the failure to properly record direct sales returns.
18. In March 2010, ICTV’s new outside auditors uncovered additional revenue
recognition errors and ICTV reported that it intended to restate its previously-restated financial
statements for the fiscal year ended 2007 and the first two quarters of 2008. In April 2010, ICTV
again restated its financial statements for the fiscal year ended 2007. The restatement included an
additional $550,000 revenue reduction related to the premature recognition of direct sales revenue
prior to expiration of a free trial period.
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19. The chart below shows that the errors were material to ICTV’s financial statements:
Period Previously
Reported Net
Income
Restated Net
Income (Loss)
Reduction to Reported Net
Income
FY 2007 $1,475,775 ($1,081,988) ($2,557,763)
1Q 2008 $109,980 ($164,773) ($274,753)
2Q 2008 $260,298 ($862,399) ($1,122,697)
Applicable Revenue Recognition Principles and Guidance
20. The basic principles of revenue recognition under GAAP provide that revenue must
be realized or realizable and earned before it can be recognized. Further, “[p]rofit is deemed to be
realized when a sale in the ordinary course of business is effected, unless the circumstances are
such that the collection of the sales price is not reasonably assured.” Accounting Research Bulletin
No. 43, Restatement and Revision of Accounting Research Bulletins, Chapter 1A. SEC Staff
Accounting Bulletin (“SAB”) No. 101, Revenue Recognition in Financial Statements (as
superseded, in part, by SAB No. 104, Revenue Recognition), reflects these basic principles of
revenue recognition and provides guidance in the application of GAAP with respect to recognizing
revenue. SAB 101 sets forth four criteria to be considered when determining whether revenue has
been realized or realizable and earned. Specifically, revenue generally may be recognized when
persuasive evidence of an arrangement exists, delivery has occurred, the seller’s price is fixed or
determinable, and collectibility is reasonably assured.
21. GAAP also provides that, when a right of return exists, revenue can be recognized
at the time of sale only if all of the following conditions are met: (1) the seller’s price is
substantially fixed or determinable at the date of sale; (2) the buyer has paid, or the buyer is
obligated to pay and the obligation is not contingent on resale of the product; (3) the buyer’s
obligation would not be changed in the event of theft, physical destruction, or damage of the
product; (4) the buyer acquiring the product for resale has economic substance apart from that
provided by the seller; (5) the seller does not have significant obligations for future performance to
directly bring about resale of the product by the buyer; and (6) the amount of future returns can be
reasonably estimated. Statement of Financial Accounting Standards No. 48, Revenue Recognition
When Right of Return Exists.
Respondents’ Deficient 2007 Audit
Background
22. Dohan + Co. issued the audit report filed with ICTV’s 2007 financial statements
and reviewed ICTV’s quarterly statements during 2007 through the second quarter of 2008.
23. Dohan + Co. contracted with another accounting firm to provide an audit manager
and senior accountant to perform the field work at ICTV. Dohan + Co. and the other accounting
firm had worked together in a similar arrangement on several other engagements. Under PCAOB
5
auditing standards, the staff sharing arrangement between Dohan + Co. and the other accounting
firm was subject to the supervision rules and responsibilities set forth in AICPA Codification of
Statements on Auditing Standards (as adopted and amended by the PCAOB) (“AU”) § 311,
Planning and Supervision.
24. Dohan + Co. reviewed the other accounting firm’s working papers and satisfied
itself with both the quality and the amount of work performed by the other accounting firm.
Dohan + Co. also made the decision to adopt the other accounting firm’s working papers, with
little modification, and performed few additional substantive procedures.
25. The audit team for the 2007 ICTV audit primarily consisted of Brown, the
engagement partner; Dohan, the concurring partner; a Canadian Chartered Accountant employed
by the other accounting firm who served as the audit manager (the “Audit Manager”); and a senior
accountant who conducted all substantive audit procedures and field work (the “Senior
Accountant”). The Senior Accountant conducted the onsite work for the audit over a two-to-three
day period in March 2008. The Audit Manager’s responsibilities included planning the audit,
supervising the onsite work and reviewing any work performed by the Senior Accountant.
Brown’s responsibilities included the overall planning and supervision of the audit. Dohan’s
responsibilities included providing an objective review of the audit and the financial statements
that were the subject of the report.
The Auditors’ Working Papers
26. On their face, the year-end 2007 audit working papers reveal that Respondents
knew of an agreement between ICTV and HSN that claimed to contribute to a 280% increase in
revenue over fiscal year-end 2006. The revenue lead sheet stated:
The Company is also now using the Home Shopping Network for sales in the US market.
HSN buys product from the Company (DermaWand and CellRX so far) and features the
product on various shows. The Company records the sales once HSN has placed the order
and the order has been shipped. HSN does not pay until they have sold the products. This
process sometimes takes a few months as HSN will pre-order for future shows.
27. A similar notation appeared on the accounts receivable lead sheet:
HSN buys a certain amount of product from the Company prior to showing the
infomercials. The Company records the sale at this time. HSN pays the Company once the
product has actually been sold.
28. The year-end 2007 audit working papers also documented that the HSN
relationship was a new and material development in ICTV’s business. An analytical review
worksheet highlighted a 280% increase in ICTV’s annual sales revenue, from $3 million in 2006 to
$11.3 million in 2007 due to “an agreement with the Home Shopping Network during the year to
sell the Company’s product.” The worksheet also reported a 414% increase to accounts receivable,
from $555,000 in 2006 to $2.9 million in 2007, as a result of increased sales. The material increase
in ICTV’s revenue, ICTV’s new relationship with HSN, the contingent payment terms associated
6
with that relationship, and Respondents’ knowledge of ICTV’s deficient internal controls, among
other factors, required Respondents to apply heightened scrutiny to the ICTV audit.
Audit Failures by Dohan, Brown, and Dohan + Co.
29. Brown reviewed and signed off on the working papers. Dohan, before signing off
on the audit, reviewed the majority of the working papers, including the revenue, accounts
receivable, and analytical review working papers. Thus, Respondents each knew of certain terms
of ICTV’s arrangement with HSN, including that HSN did not pay ICTV until it sold the product
to end users. This should have alerted Respondents that ICTV’s revenue recognition practices did
not comply with GAAP.
30. Indeed, Dohan understood at the time of the audit that the sell-through of ICTV’s
product by HSN presented a revenue recognition issue under SAB 101, but failed to research the
issue at the time of his review nor direct any other member of the audit team to research the issue.
31. Despite knowledge of the above, Respondents unreasonably failed to properly audit
ICTV’s revenue recognition practices. For example, Respondents failed to obtain a copy of the
applicable agreement between ICTV and HSN. Brown knew that there was an agreement between
ICTV and HSN to sell ICTV’s product. Dohan knew that ICTV’s revenue and accounts receivable
had increased “dramatically” in 2007 as a result of an agreement entered into with HSN. Yet,
Respondents each failed to inquire as to the existence of any written agreement and failed to obtain
a copy of any written agreement. Respondents’ failure to inquire about the terms of the applicable
ICTV agreement with HSN, to obtain a copy of the agreement, or to adequately understand the
nature of ICTV’s relationship with HSN was an unreasonable departure from professional
standards. Because of these failures, Respondents failed to recognize that under the HSN drop-
ship agreement, no sale occurred, and revenue should not have been recognized, until the product
was sold to end users.
32. Respondents also failed to issue audit confirmations to confirm ICTV’s accounts
receivable and inventory, or perform adequate alternative procedures. Respondents knew that their
own audit program called for the confirmations of receivables and inventory. Had confirmations
been sent and received by the auditors, Respondents could have learned that the sales and
inventory levels reported by ICTV were not supported.
33. Brown and Dohan + Co. also neglected to perform other audit procedures dictated
by the audit program. For example, the audit program required the auditors to review and attend
physical inventory counts. This step was marked “NA” in the working papers, indicating that it
was not performed. The audit program also recommended that the auditors consider extended
procedures to confirm sales terms and conditions with customers; this step was marked “NA” as
well. Dohan knew that these procedures were not performed.
34. The working papers also contain a number of internal inconsistencies that should
have been resolved by Respondents. For instance, although the revenue and accounts receivable
lead sheets described how HSN did not pay ICTV until sell-through, which sometimes took “a few
months,” the working papers elsewhere indicated that there were no “unusual or long payment
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terms” or “buyer conditions which must be met in order to complete the sale.” In addition, the
revenue working papers reported that cash had been received for a $990,000 sale to HSN on
December 21, 2007, while the accounts receivable working papers reported the $990,000 balance
as still outstanding. Respondents failed to reconcile any of these inconsistencies during their
review of the working papers.
35. Brown and Dohan + Co. also failed to properly audit ICTV’s stated revenue and
returns for direct consumer sales. The working papers do not reflect that the audit team considered
ICTV’s revenue recognition practices for such sales in light of the 30-day free trial period extended
to direct sales customers. The working papers also do not show that the auditors performed any
substantive testing of ICTV’s stated returns for direct sales, or that the auditors considered the
impact of applicable GAAP guidance on estimating future returns for such sales. The auditors also
failed to reconcile an inherent inconsistency between ICTV’s stated returns and its disclosed
historical return rate for direct consumer sales.
The Auditors Issue Unqualified Audit Reports on ICTV’s 2007 Financial Statements
Despite Numerous Audit Failures
36. Despite these failures, Dohan, Brown, and the other auditors caused Dohan + Co. to
issue an unqualified audit report on ICTV’s 2007 financial statements, which incorrectly
represented 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 GAAP. The audit
completion documents, which included a checklist and the auditors’ assessment that the audit was
complete, reflect that Dohan, Brown, and the other auditors were each satisfied with the work
performed and signed off on the release of the audit report.
37. Respondents also conducted the audit and review work on ICTV’s restatement for
the fiscal year ended 2007 and the first two quarters of 2008. In March 2009, Dohan + Co. issued
an unqualified audit report on ICTV’s restated 2007 financial statements. The restatement working
papers indicate that Dohan, Brown, and the other auditors each reviewed the restated financial
statements and signed off on the release of the audit report.
38. In September 2009, ICTV retained new auditors. The new auditors found
additional revenue recognition errors and brought them to ICTV’s attention. Based upon this
information, ICTV concluded that the restated 2007 financial statements needed to be restated.
This additional restatement further calls into question Dohan + Co.’s competence under applicable
PCAOB standards.
Respondents’ Improper Professional Conduct
39. The “applicable professional standards” for accountants practicing before the
Commission include the PCAOB auditing standards.
40. PCAOB auditing standards require that the auditor be proficient in accounting
matters and that the “auditor with final responsibility for the engagement should know, at a
minimum, the relevant professional accounting and auditing standards and should be
8
knowledgeable about the client.” AU § 230.06, Due Professional Care in the Performance of
Work; see also AU § 210, Training and Proficiency of the Auditor. AU Section 230 also requires
an auditor to exercise due professional care and professional skepticism, which includes
demonstrating a questioning mind and a critical assessment of audit evidence.
41. PCAOB auditing standards require that “competent evidential matter . . . be
obtained through inspection, observation, inquiries, and confirmations to afford a reasonable basis
for an opinion regarding the financial statements under audit.” AU § 326.01, Evidential Matter.
This “includes both written and electronic information such as . . . contracts.” AU § 326.17. The
auditor is also to send out audit confirmations. AU § 330, The Confirmation Process.
42. Auditors must adequately plan, staff, and supervise the audit. See AU §§ 150.02,
Generally Accepted Auditing Standards; 210.01; 230.06; 311.01 et seq., Planning and Supervision;
311.11 et seq. This includes “obtain[ing] a level of knowledge of the entity’s business that will
enable” the auditor to understand transactions and practices that may have a significant effect on
the financial statements. AU § 311.06.
43. Further, AU § 316, Consideration of Fraud in a Financial Statement Audit, requires
the auditor to assess the risks of material misstatement due to fraud and to presume that revenue
recognition is a fraud risk.
44. The Audit Manager was responsible for supervising and reviewing documentation
of field work performed. As the engagement partner, Brown had overall responsibility for the
engagement to ensure that Dohan + Co.’s audit of ICTV’s 2007 financial statements was
conducted in accordance with PCAOB auditing standards, including planning and supervising the
audit and the review of field work. Dohan, as the concurring partner, knew that his role was to
“give a fresh, clean look at a job, to provide a fresh set of eyes on the engagement, and to assist
where necessary in making sure the engagement goes out to the best of the firm’s ability.”
45. Indeed, Dohan and Brown were already on notice that the PCAOB had identified
material audit deficiencies with respect to many of the auditing standards discussed above, per an
inspection of Dohan + Co. by the PCAOB prior to Respondents’ 2007 ICTV audit. As a result of
that inspection, Dohan and Brown learned that the PCAOB found a number of deficiencies
regarding the firm’s audits of other clients, including the failure to adequately test revenue and to
obtain sufficient evidential matter, as well as deficiencies in Dohan + Co.’s quality control
procedures, including concurring partner reviews.
46. During the 2007 ICTV audit, Respondents unreasonably departed from the PCAOB
auditing standards in numerous instances, including in the manner further described below.
47. Respondents failed to demonstrate the required level of proficiency. Brown was
not aware of applicable GAAP guidance that prohibits revenue recognition if payment of the
related sales receivable was dependent upon sell-through by the customer. Although Dohan was
aware of some of the applicable GAAP guidance, and knew that ICTV’s revenue recognition
practices potentially violated GAAP, he failed to conduct additional research or direct another
member of the audit team to follow up.
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48. Respondents failed to obtain sufficient evidential matter. Respondents failed to
understand, or obtain a copy of, ICTV’s written contract with HSN, despite the fact that each knew
that ICTV had an “agreement” or “business arrangement” with HSN to sell ICTV’s product. In
addition, Brown and Dohan each reviewed the working papers that expressly stated that ICTV’s
revenue had materially increased in 2007 due to an “agreement” with HSN.
49. Respondents failed to exercise due professional care and skepticism in the face of
numerous red flags and inconsistencies. Respondents never asked ICTV for a copy of any HSN
agreement or documentation of the terms of the agreement. Brown and Dohan + Co. ignored or
disregarded specific audit program steps regarding, among others, long payment terms, buyer
conditions in the sale of product, the confirmation of significant accounts receivable, and the
observation of physical inventory counts. Dohan, during his review, either agreed that such
procedures were not necessary or failed to identify his fellow auditors’ disregard for these auditing
steps. Respondents also failed to reconcile numerous inconsistencies during their review of the
working papers.
50. Respondents failed to send out accounts receivable confirmations as required by the
audit program or to ensure adequate alternative procedures. Further, Brown and Dohan + Co.
knew that the audit program also recommended that the auditors send out sales terms and
conditions and inventory confirmations but elected not to do so. Dohan supported these decisions
despite his belief that ICTV’s revenue recognition practice with respect to HSN presented an issue
under SAB 101 and with the knowledge that the audit program recommended these confirmations
be sent.
51. Respondents failed to adequately plan, staff and supervise the audit. Brown never
visited ICTV or the office of the other accounting firm, and relied upon the Audit Manager to
manage all of the field work. Dohan failed to ensure that Brown and the Audit Manager were
adequately proficient to conduct the audit.
52. Brown and Dohan + Co. failed to sufficiently understand ICTV’s business to enable
it to understand transactions that had a significant effect on ICTV’s financial statements. Brown
and Dohan + Co. failed to identify the impact of ICTV’s 30-day free trial period, or applicable
GAAP standards prohibiting revenue recognition prior to customer acceptance where a trial or
evaluation period exists. The working papers also do not reflect that Brown or Dohan + Co.
performed any substantive testing of ICTV’s stated returns for direct sales, or that they considered
the impact of applicable GAAP guidance on estimating future returns for such sales. The auditors
also failed to reconcile an inherent inconsistency between ICTV’s stated returns and its disclosed
historical return rate for direct consumer sales.
53. Finally, Respondents also failed to consider other Standards of Field Work
contained in AU Section 300, including AU Section 316, Consideration of Fraud in a Financial
Statement Audit; AU Section 329, Analytical Procedures; and AU Section 331, Inventories.
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E. VIOLATIONS
54. Rule 102(e)(1)(ii) of the Commission’s Rules of Practice and Section 4C of the
Exchange Act authorize the Commission to censure or deny, temporarily or permanently, the
privilege of appearing or practicing before the Commission to accountants who are found to have
engaged in improper professional conduct. Under 102(e)(1)(iv), the term “improper professional
conduct” includes “repeated instances of unreasonable conduct, each resulting in a violation of
applicable professional standards, that indicate a lack of competence to practice before the
Commission.”
55. Dohan + Co.’s, Dohan’s and Brown’s actions during the engagements were
unreasonable, failed to conform to applicable professional standards and indicate a lack of
competence to practice before the Commission. Dohan and Brown failed to (i) obtain sufficient
evidential matter regarding ICTV’s relationship with HSN; (ii) demonstrate the required level of
proficiency, particularly with respect to applicable GAAP guidance that prohibited ICTV’s
revenue recognition practices; (iii) exercise due professional care and professional skepticism in
performing the audit of ICTV; (iv) issue accounts receivable confirmations or to ensure adequate
alternative procedures; and (v) adequately plan the audit and properly supervise the audit personnel
in connection with the 2007 engagement. Dohan + Co. issued an unqualified audit report for
ICTV’s Form 10-K/SB stating that it had conducted its audit in accordance with PCAOB standards
and that ICTV’s financial statements were fairly reported in conformity with GAAP. Dohan +
Co.’s audit, however, was not conducted in accordance with PCAOB standards, in part due to
Dohan’s and Brown’s failures described above.
F. FINDINGS
56. As a result of the conduct described above, the Commission finds that Respondents
Dohan + Co., Dohan, and Brown engaged in improper professional conduct pursuant to Rules
102(e)(1)(ii) and 102(e)(1)(iv)(B)(2) of the Commission’s Rules of Practice and Section 4C of the
Exchange Act.
G. UNDERTAKINGS
Dohan + Co. undertakes the following:
1. Acceptance of New Public Company Audit Clients. The goal of this undertaking is
to provide adequate time for Dohan + Co. to implement the undertakings
concerning the auditing and quality control matters described below and implement
such other adjustments to its audit practice required by the suspensions of Dohan
and Brown from appearing or practicing before the Commission. Dohan + Co.
undertakes that, following the issuance of the Order, it will not accept new
engagements for public company audits prior to the later of 12 months from the
date of entry of the Order, or the date that an independent consultant certifies in
writing that the undertakings discussed herein have been completed to the
satisfaction of the Independent Consultant, as described in paragraph 4(b), below.
A public company audit is defined as an engagement to audit the financial
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statements of an “issuer” as that term is defined in Section 3(a)(8) of the Exchange
Act.
2. Auditing Matters. The goal of this undertaking is to require Dohan + Co. to engage
in an internal review of its existing policies and procedures concerning compliance
with the relevant professional, regulatory and firm requirements with respect to
public company audit engagements. Within 12 months from the date of entry of the
Order, Dohan + Co. shall adopt and implement policies and procedures, including
but not limited to Quality Control Policy and Procedures, to provide Dohan + Co.
with a reasonable assurance, for its audit and review engagements, that the firm and
its personnel comply with professional auditing standards and applicable regulatory
and legal requirements, and that the firm or engagement partners issue reports that
are appropriate in the circumstances. The elements of quality control are identified
in the PCAOB’s Interim Standard, System of Quality Control for a CPA Firm’s
Accounting and Auditing Practice (“QC 20”). The Principals/Partners of Dohan +
Co. should have a working knowledge of Dohan + Co.’s procedures and how they
meet the requirements of QC 20.
3. Professional Development. The goal of this undertaking is to require Dohan + Co.
auditing personnel to participate in professional development activities in subjects
that are relevant to their responsibilities and will contribute to their technical
training and proficiency as an auditor. Dohan + Co. undertakes to require all of its
professional accounting and auditing personnel, to undergo training as follows:
(a) A minimum of 40 hours of continuing professional education (“CPE”) in the
following areas of generally accepted accounting principles set forth in FASB
Accounting Standard Codifications: (i) Topic 205: Presentation of Financial
Statements; (ii) Topic 330: Inventory; (iii) Topic 450: Contingencies; and (iv)
Topic 605: Revenue Recognition (at leas t 16 hours on this Topic). The CPE
must meet the requirements of the Florida State Board of Accountancy.
(b) A minimum of 40 hours of CPE in the following PCAOB topics and auditing
standards
3: (i) Audit Confirmations; (ii) Cons ideration of Fraud in a Financial
Statement Audit; (iii) Audit Planning; (iv) Audit Evidence; (v) Inventories;
(vi) Training and Proficiency of the Independent Auditor; (vii) Planning and
Supervision; (viii) Due Professional Care in the Performance of Work and (ix)
3 PCAOB auditing standards consist of recent auditing standards adopted by the PCAOB and approved by the
Commission (“AS”), as well as preexisting AICPA auditing standards adopted as interim standards by the PCAOB
in April 2003 (“AU”).
12
Supervision of an Audit.4 The CPE must meet the requirements of the Florida
State Board of Accountancy.
(c) A minimum of 40 hours of independent self-study (need not be a formal
review course) in the following areas of accounting and auditing standards,
including interpretative guidance by the Commission staff: (i) Staff
Accounting Bulletin No. 99: Materiality; (ii) Staff Accounting Bulletin Nos.
101: Revenue Recognition in Financial Statements, and 104: Revision of
Topic 13; (iii) Staff Accounting Bulletin No. 108: Considering the Effects of
Prior Year Misstatements When Quantifying Misstatements in Current Year
Financial Statements; (iv) FASB Accounting Standard Codification Topic
605-15-25: Sale of Product when Right of Return Exists; (v) AU 150:
Generally Accepted Auditing Standards; (vi) AU 550: Other Information in
Documents Containing Audited Financial Statements; and (vii) AS No. 7:
Engagement Quality Review.
4. Independent Consultant. Dohan + Co. shall retain an Independent Consultant
acceptable to the Commission staff, to work with Dohan + Co. to assure the
Commission staff that Dohan + Co. has satisfactorily implemented the undertakings
expressed herein and that after such undertakings it is reasonable to expect that the
violations found have been remedied and that Dohan + Co.’s future audits should
result in compliance with the relevant professional, regulatory and firm
requirements with respect to public company audit engagements. The Independent
Consultant shall report to the Commission staff as follows:
(a) The Independent Consultant shall report to the Commission staff in
writing six months and 12 months from the date work has begun as to the
findings of the Independent Consultant’s review and Dohan + Co.’s efforts
at correcting the violations.
(b) The suspension from accepting new audit engagements for public
company clients, as described in paragraph 1, above, shall continue until
the Independent Consultant has certified in writing that the undertakings
discussed herein have been completed to the satisfaction of the
Independent Consultant.
(c) The Independent Consultant will review a sampling of Dohan + Co.’s
audits of SEC registrants after the 12-month suspension discussed in
paragraph 1, above, has elapsed and after Dohan + Co. has resumed
4 PCAOB guidance on many of the auditing standards listed herein are in transition. Certain existing standards are
expected to be amended or superseded. Specifically, the PCAOB has recently adopted AS No. 8 through AS No. 15
(Eight New Risk Assessment Standards), which have been submitted to the Commission for approval (see Securities
and Exchange Commission Release No. 34-62919). The standards, if approved, will become effective for audits of
fiscal periods beginning on or after December 15, 2010. The CPE completed pursuant to these undertakings should
focus on the requirements of the new standards, including changes made to existing standards if approved.
13
auditing SEC registrants, for a 12-month period. The Independent
Consultant and Dohan + Co. shall certify that they each have no reason to
believe that Dohan + Co.’s audits do not conform with the relevant
professional, regulatory and firm requirements with respect to public
company audit engagements in all material matters.
All reports and certifications shall be submitted to Tracy Davis, Assistant Regional
Director, San Francisco Regional Office or her successor, with copies to the Office
of Chief Counsel of the Enforcement Division and to the PCAOB, Director of
Registration and Inspection.
5. Independent Consultant Independence. Dohan + Co. will require the Independent
Consultant to enter into an agreement that provides that for the period of
engagement and for a period of two years from completion of the engagement, the
Independent Consultant shall not enter into any employment, consultant, attorney-
client, auditing or other professional relationship with Dohan + Co., or any of its
present or former affiliates, directors, officers, employees, or agents acting in their
capacity. The agreement will also provide that the Independent Consultant will
require that any firm with which he/she is affiliated or of which he/she is a member,
and any person engaged to assist the Independent Consultant in performance of
his/her duties under the Order shall not, without prior written consent of the San
Francisco Regional Office, enter into any employment, consultant, attorney-client,
auditing or other professional relationship with Dohan + Co., or any of its present
or former affiliates, directors, officers, employees, or agents acting in their capacity
as such for the period of the engagement and for a period of two years after the
engagement.
6. Joint Audit Arrangements. Dohan + Co. agrees to cease permanently all joint audit
arrangements with other auditors in which Dohan + Co. serves as the principal
auditor in connection with audits of SEC registrants, other than joint arrangements
required by foreign jurisdictions.
7. Certification of Compliance. Dohan + Co. will certify, in writing, compliance with
the undertakings set forth above. The certification shall identify the undertakings,
provide written evidence of compliance in the form of a narrative, and be supported
by exhibits sufficient to demonstrate compliance. The Commission staff may make
reasonable requests for further evidence of compliance, and Dohan + Co. agrees to
provide such evidence. The certification and supporting material shall be submitted
to Tracy Davis, Assistant Regional Director, San Francisco Regional Office or her
successor, with a copy to the Office of Chief Counsel of the Enforcement Division,
no later than sixty (60) days from the date of the completion of the undertakings.
14
III.
In view of the foregoing, the Commission deems it appropriate to impose the sanctions
agreed to in Respondents’ Offers.
Accordingly, it is hereby ORDERED, effective immediately, that:
Dohan + Co.
A. Dohan + Co. is hereby censured pursuant to Rule 102(e)(1)(ii) and
102(e)(1)(iv)(B)(2) of the Commission’s Rules of Practice and Section 4C of the Exchange Act.
Dohan
B. Dohan is denied the privilege of appearing or practicing before the Commission as
an accountant.
C. After three years from the date of this order, Dohan may request that the
Commission consider his reinstatement by submitting an application (attention: Office of the
Chief Accountant) to resume appearing or practicing before the Commission as:
1. a preparer or reviewer, or a person responsible for the preparation or
review, of any public company’s financial statements that are filed with the Commission. Such
an application must satisfy the Commission that Dohan’s work in his practice before the
Commission will be reviewed either by the independent audit committee of the public company
for which he works or in some other acceptable manner, as long as he practices before the
Commission in this capacity; and/or
2. an independent accountant. Such an application must satisfy the
Commission that:
(a) Dohan, or the public accounting firm with which he is associated, is
registered with the Public Company Accounting Oversight Board (“Board”) in accordance with the
Sarbanes-Oxley Act of 2002, and such registration continues to be effective;
(b) Dohan, or the registered public accounting firm with which he is
associated, has been inspected by the Board and that inspection did not identify any criticisms of or
potential defects in the respondent’s or the firm’s quality control system that would indicate that
the respondent will not receive appropriate supervision;
(c) Dohan has resolved all disciplinary issues with the Board, and has
complied with all terms and conditions of any sanctions imposed by the Board (other than
reinstatement by the Commission); and
(d) Dohan acknowledges his responsibility, as long as Dohan appears
or practices before the Commission as an independent accountant, to comply with all
15
requirements of the Commission and the Board, including, but not limited to, all requirements
relating to registration, inspections, concurring partner reviews and quality control standards.
D. The Commission will consider an application by Dohan to resume appearing or
practicing before the Commission provided that his state CPA license is current and he has
resolved all other disciplinary issues with the applicable state boards of accountancy. However,
if state licensure is dependent on reinstatement by the Commission, the Commission will
consider an application on its other merits. The Commission’s review may include consideration
of, in addition to the matters referenced above, any other matters relating to Dohan’s character,
integrity, professional conduct, or qualifications to appear or practice before the Commission.
E. As a condition for reinstatement, Dohan shall have completed the professional
training as described in Section III(G)(3), above.
Brown
F. Brown is denied the privilege of appearing or practicing before the Commission as
an accountant.
G. After three years from the date of this order, Brown may request that the
Commission consider her reinstatement by submitting an application (attention: Office of the
Chief Accountant) to resume appearing or practicing before the Commission as:
1. a preparer or reviewer, or a person responsible for the preparation or
review, of any public company’s financial statements that are filed with the Commission. Such
an application must satisfy the Commission that Brown’s work in her practice before the
Commission will be reviewed either by the independent audit committee of the public company
for which she works or in some other acceptable manner, as long as she practices before the
Commission in this capacity; and/or
2. an independent accountant. Such an application must satisfy the
Commission that:
(a) Brown, or the public accounting firm with which she is associated,
is registered with the Public Company Accounting Oversight Board (“Board”) in accordance with
the Sarbanes-Oxley Act of 2002, and such registration continues to be effective;
(b) Brown, or the registered public accounting firm with which she is
associated, has been inspected by the Board and that inspection did not identify any criticisms of or
potential defects in the respondent’s or the firm’s quality control system that would indicate that
the respondent will not receive appropriate supervision;
(c) Brown has resolved all disciplinary issues with the Board, and has
complied with all terms and conditions of any sanctions imposed by the Board (other than
reinstatement by the Commission); and
16
(d) Brown acknowledges her responsibility, as long as Brown appears
or practices before the Commission as an independent accountant, to comply with all requirements
of the Commission and the Board, including, but not limited to, all requirements relating to
registration, inspections, concurring partner reviews and quality control standards.
H. The Commission will consider an application by Brown to resume appearing or
practicing before the Commission provided that her state CPA license is current and she has
resolved all other disciplinary issues with the applicable state boards of accountancy. However, if
state licensure is dependent on reinstatement by the Commission, the Commission will consider an
application on its other merits. The Commission’s review may include consideration of, in
addition to the matters referenced above, any other matters relating to Brown’s character, integrity,
professional conduct, or qualifications to appear or practice before the Commission.
I. As a condition for reinstatement, Brown shall have completed the professional
training as described in Section III(G)(3), above.
By the Commission.
E l i z a b e t h M . M u r p h y
S e c r e t a r y
17
Service List
Rule 141 of the Commission's Rules of Practice provides that the Secretary, or
another duly authorized officer of the Commission, shall serve a copy of the Order Making
Findings and Imposing Remedial Sanctions Pursuant to Section 4C of the Securities
Exchange Act of 1934 and Rule 102(e) of the Commission’s Rules of Practice as to
Dohan + Company CPAs, Steven H. Dohan, CPA, and Nancy L. Brown, CPA (“Order”), on
the Respondents and their legal agents.
The attached Order has been sent to the following parties and other persons entitled
to notice:
Honorable Carol Fox Foelak
Administrative Law Judge
Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549-2557
Lloyd Farnham, Esq.
John Yun, Esq.
Jason Habermeyer, Esq.
San Francisco Regional Office
Securities and Exchange Commission
44 Montgomery Street, Suite 2600
San Francisco, CA 94104
Dohan + Company CPAs
c/o Michael Tarre, Esq.
Two South Biscayne Boulevard, Suite 3700
Miami, FL 33131
Mr. Steven H. Dohan
c/o Michael Tarre, Esq.
Two South Biscayne Boulevard, Suite 3700
Miami, FL 33131
Ms. Nancy L. Brown
c/o Susan E. Trench, Esq.
Goldstein, Tanen & Trench, P.A.
One Biscayne Tower, Suite 3700
Two South Biscayne Boulevard
Miami, FL 33131
18
Michael Tarre, Esq.
Two South Biscayne Boulevard, Suite 3700
Miami, FL
(Counsel for Dohan + Company CPAs and Steven H. Dohan)
33131
Susan E. Trench, Esq.
Goldstein, Tanen & Trench, P.A.
One Biscayne Tower, Suite 3700
Two South Biscayne Boulevard
(Counsel for Nancy L. Brown)
Miami, FL 33131
19
UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
SECURITIES EXCHANGE ACT OF 1934
Release No. 63740 / January 20, 2011
ACCOUNTING AND AUDITING ENFORCEMENT
Release No. 3232 / January 20, 2011
ADMINISTRATIVE PROCEEDING
File No. 3-13997
In the Matter of
DOHAN + COMPANY CPAs,
STEVEN H. DOHAN, CPA,
NANCY L. BROWN, CPA, and
EREZ BAHAR, CA,
Respondents.
ORDER MAKING FINDINGS AND
IMPOSING REMEDIAL SANCTIONS
PURSUANT TO SECTION 4C OF THE
SECURITIES EXCHANGE ACT OF 1934
AND RULE 102(e) OF THE COMMISSION’S
RULES OF PRACTICE AS TO DOHAN +
COMPANY CPAS, STEVEN H. DOHAN,
CPA, AND NANCY L. BROWN, CPA
I.
In these proceedings, instituted on August 9, 2010 pursuant to Section 4C of the Securities
Exchange Act of 1934 (“Exchange Act”) and Rule 102(e)(1)(ii) of the Securities and Exchange
Commission’s (“Commission”) Rules of Practice, Respondents Dohan + Company CPAs (“Dohan
+ Co.”), Steven H. Dohan (“Dohan”), and Nancy L. Brown (“Brown”) (collectively
“Respondents”) have submitted Offers of Settlement (“Offer”) which the Commission has
determined to accept.
II.
Solely for the purpose of these proceedings and any other proceedings brought by or on
behalf of the Commission, or to which the Commission is a party, and without admitting or
denying the findings herein, except as to the Commission’s jurisdiction over them and the subject
matter of these proceedings, which are admitted, Respondents consent to the entry of this Order
Making Findings and Imposing Remedial Sanctions Pursuant to Section 4C of the Securities
Exchange Act of 1934 and Rule 102(e) of the Commission’s Rules of Practice as to Dohan +
Company CPAs, Steven H. Dohan, CPA, and Nancy L. Brown, CPA (“Order”), as set forth below.
III.
On the basis of this Order and the Offers of Respondents Dohan + Co., Dohan, and Brown,
the Commission finds1 that:
A. SUMMARY
1. These proceedings arise out of Respondents’ improper professional conduct during
their audit of International Commercial Television, Inc.’s (“ICTV”) 2007 financial statements.
During fiscal year 2007, ICTV improperly recognized revenue and incorrectly recorded product