PCAOB hits multiple firms with sanctions
August 14, 2023
The Public Company Accounting Oversight Board announced a number of disciplinary orders and sanctions last week, imposing fines as high as $125,000 on individual firms and partners.
The orders covered a range of infractions, from inadequate quality control standards and independence violations, to disclosure and reporting requirement failures.
"When auditors fall short in performance, documentation, supervision, and quality control, they are putting investors at risk, and the PCAOB will take action," said Chair Erica Williams, in a statement.
Since Williams took the helm in January 2022, she has regularly warned auditors that the board will take a much more aggressive approach to enforcement, which has taken a number of forms, including "sweeps" that gather information on the same kind of potential violation from multiple firms at once, to levying the largest-ever fine against an individual auditor.
Below are the disciplinary orders that were released last week.
Blue & Co.
On Aug. 9, the board announced a settled disciplinary order sanctioning Indiana-based Top 100 Firm Blue & Co. LLC for auditor independence violations, for allowing a partner who had served as the engagement quality reviewer or engagement partner on three employee benefits plans from 2013 to 2017 to then serve as engagement partner on the same audits in 2018 and 2019. (Partners are only supposed to hold these roles on a particular audit for five years, and then are required to be off the engagement for the next five years.)
The board also said that the firm violated quality control standards in its 2018 and 2019 employee benefit plan audits; specifically, it failed to set up systems to ensure compliance with auditor rotation and independence requirements.
Blue neither admitted nor denied the findings, but consented to a $75,000 fine, and agreed to review and certify its auditor independence policies. The board noted Blue's "extraordinary cooperation," which included self-reporting its independence violations; absent that, it said, the penalty might have been "significantly larger."
"Investors rely on registered firms and their associated persons to maintain their objectivity by complying with auditor independence requirements," said Robert Rice, director of the PCAOB's Division of Enforcement and Investigations, in a statement. "In this case, the firm's quality control shortcomings contributed to partner rotation violations in six issuer audits across two years."
KG Somani & Co.
On Aug. 8, the board sanctioned India-based K G Somani & Co. LLP for various violations in a settled disciplinary order. The board also sanctioned engagement partner Anuj Somani.
During a 2020 issuer audit, KGS failed to have the necessary quality control policies and procedures in place, and Somani failed to perform all the needed audit procedures prior to the release of KGS' audit report, didn't adequately document the audit work, and didn't properly supervise the engagement team.
The order was settled without the firm or Somani admitting or denying the findings. KGS will have to pay a $125,000 penalty, and engage an independent consultant to help improve its quality control regime. Somani will have to pay $50,000, and is banned from associating with a PCAOB-registered accounting firm for a year.
"In this case, not only did the firm's quality control system fall short, the resulting audit failures by the firm and its engagement partner spanned the performance, documentation, and supervision of the firm's audit work," the PCAOB's Rice said in a statement.
RAM Associates & Co.
On Aug. 10, announced a settled disciplinary order from the board sanctioned New Jersey-based RAM Associates & Co. LLC and sole owner and engagement partner Parameswara K. Ramachandran for violations in multiple audits conducted for two issuer clients.
In particular, the firm failed to obtain sufficient appropriate evidence to audit the valuation of a client's goodwill and the work of a specialist in two audits; failed to create a final se of audit documentation for two audits; failed to communicate all that was necessary to the audit committee in two audits; and failed to get pre-approval from an audit committee for tax services.
The order also said the firm didn't file five Form APs on time, and didn't make sure that engagement quality reviews were performed and documented appropriately.
Without admitting or denying the findings, Ramachandran and the firm consented to a $150,000 penalty. The firm's registration was revoked, and Ramachandran barred from associating with a registered firm, for at least two years.
Ciro E. Adams CPA
On Aug. 9, a settled disciplinary order sanctioning Delaware-based Ciro E. Adams CPA LLC and its sole partner, Ciro E. Adams, was released. Adams and the firm were cited for relying too heavily on information and representations presented by audit clients in four audits.
In particular, the order noted that they didn't obtain appropriate audience regarding testing revenue over several years and testing a significant acquisition for one client, and testing notes receivable and potential related-party transactions for another.
"These respondents relied too heavily — and sometimes exclusively — on management representations and company-prepared materials," said Rice.
"Professional skepticism is critical to high-quality audits and investor protection," said Williams in a statement. "Auditors who fail to exercise due professional care and skepticism will face consequences."
Adams and his firm neither admitted nor denied anything, and consented to a $40,000 penalty. The firm's registration with the PCAOB has been revoked and Adams is barred from associating with a registered firm; those bans will may be reversed after two years. Adams is required to under extra continuing professional education before petition to have his bar terminated.
Disclosure violations
Three separate firms were sanctioned on Aug. 11 as a result of a sweep looking for failures to comply with PCAOB reporting requirements. Two firms failed to timely disclose their role in the audit of an issuer or broker-dealer on Form 2, "Annual Report", and a third failed to timely report a legal name change on Form 3, "Special Report."
None of the firms admitted or denied the findings; all consented to censure, and the following civil monetary penalties:
BDO Taiwan: $35,000;
Jendrach Accounting and Professional Services: $25,000; and,
Moore MSLL Lima Lucchesi Auditores e Contadores Ltda.: $25,000.
"Complete and accurate reporting on required annual reports, and timely reporting of firm legal name changes enable investors to rely on information provided by firms and ensures the board's ability to oversee registered firms," said Rice. "Sweeps enable us to pursue these types of potential violations and will continue to be an important tool in our enforcement arsenal."
[Accounting Today]
