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PCAOB Announces Disciplinary Orders Against Nine Audit Firms

S.J. Steinhardt
Published Date:
Nov 16, 2023

iStock-519089329 Audit

On Nov. 14 and 15, the Public Company Accounting Oversight Board (PCAOB) announced a number of settled disciplinary orders for a range of violations, imposing penalties totaling approximately $4 million across nine audit firms. 

The PCAOB imposed censures, $255,000 in total fines, and remedial undertakings against six firms for violating PCAOB rules and standards related to communications with audit committees. 

Specifically, all six firms failed to make certain required communications with audit committees related to the planned participation of other firms and individuals in the audit, as required by AS 1301.10, Communications with Audit Committees. The firms are: Cherry Bekaert LLP ($35,000 civil money penalty and censure); Deloitte Audit ($50,000 civil money penalty and censure); KPMG (Argentina) ($40,000 civil money penalty and censure); KPMG Auditores Independentes Ltda. (Brazil) ($40,000 civil money penalty and censure); RH CPA ($45,000 civil money penalty and censure); and UHY LLP ($45,000 civil money penalty and censure). 

In addition, UHY LLP failed to obtain audit committee preapproval in connection with providing non-audit services to an issuer audit client, in violation of PCAOB Rule 3520, Auditor Independence, and PCAOB Rule 3524, Audit Committee Pre-Approval of Certain Tax Services. RH CPA also failed to file an accurate Form AP in violation of PCAOB Rule 3211, Auditor Reporting of Certain Audit Participants. 

Without admitting or denying the findings, each firm consented to its respective PCAOB order and disciplinary action. Each firm also consented to undertake remedial measures to establish, improve, or comply with revised policies and procedures concerning compliance with PCAOB rules and standards related to these violations.  

“The PCAOB is seeing too many instances where auditors fail to comply with rules and standards in communicating with audit committees,” said PCAOB Chair Erica Y. Williams. “Audit committees play a critical role in helping protect investors, and the PCAOB will continue to enforce communications requirements designed to ensure they have the information needed to oversee the auditor’s work and ensure independence.” 

The PCAOB also sanctioned Somerset CPAs, P.C. and three of its partners for rules and audit standards violations, imposing $230,000 in fines, among other sanctions.  

Partners Douglas Fahrnow, Rebecca Quintana, and Edward McGuire were found to have failed to comply with PCAOB rules and audit standards while serving as either the engagement partner or engagement quality review partner on four audits of three issuers, while Somerset failed to comply with PCAOB rules and quality control standards. 

The firm was fined $100,000, Fahrnow $60,000, Quintana $40,000, and McGuire $30,000. The three were also barred from being associated persons of a registered public accounting firm, with the option for Fahrnow and Quintana to file for Board consent to associate after two years and McGuire after one year. 

“A firm’s system of quality control provides the foundation for properly performed audits,” said Williams. “Firms will be held accountable for quality control deficiencies—especially when there are repeated failures by firm personnel across multiple audits. 

The PCAOB also sanctioned and fined KPMG AZSA LLC, the firm’s Japanese affiliate, $500,000 for quality control violations. Specifically, the PCAOB found that, from 2019 through 2021, KPMG Japan’s policies and procedures were insufficient to provide it with reasonable assurance that firm personnel performing audits pursuant to PCAOB standards would conduct sufficient testing of journal entries to comply with applicable auditing standards.  The sanctions require the firm to review and certify quality control policies and procedures concerning journal entry testing. 

“Effective quality control systems protect investors, while ineffective systems put investors at risk,” said Williams. “That's why quality control has been and will remain a PCAOB priority across our standard-setting, inspection, and enforcement efforts.” 

The PCAOB also censured and fined PricewaterhouseCoopers Auditing Co. SA, PwC’s Greek affiliate, $3 million for rules and standards violations connected with its 2016 audit of Aegean Marine Petroleum Network Inc. The PCAOB found that Komodromos and the PwC Greece engagement team failed to respond with due professional care and appropriate professional skepticism to inconsistent audit evidence they uncovered about four of Aegean’s customers, from which 13 percent of Aegean’s reported revenue arose in 2016. The PCAOB also censured partner Nicos George Komodromos, fined him $80,000, and barred him for two years from being associated with a registered auditing firm. 

“To protect investors, the Board will hold both firms and engagement partners accountable when they fail to respond appropriately to significant risks,” said Williams. 

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