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PCAOB Sanctions Seven Firms for Violations

By:
S.J. Steinhardt
Published Date:
Aug 15, 2023

The Public Companies Accounting Oversight Board (PCAOB) announced last week that it sanctioned seven audit firms, imposing fines totaling more than half a million dollars.

Most recently, on Aug. 11, the PCAOB announced that it sanctioned three firms for failing to make required disclosures. Two of the sanctioned firms failed to disclose their roles in an audit ofan issuer or broker-dealer on the PCAOB’s Form 2, Annual Report in a timely fashion, and the third firm failed to report a legal name change on Form 3, Special Report, in a timely fashion.

The two firms sanctioned for Annual Report violations were BDO Taiwan, which was assessed a $35,000 civil money penalty and was censured, and Jendrach Accounting and Professional Services, which was assessed a $25,000 civil money penalty and was censured.

The third firm, Moore MSLL Lima Lucchesi Auditores e Contadores Ltda, was assessed a $25,000 civil money penalty and was censured for its Special Reports violation.

The firms, without admitting or denying the findings, consented to the PCAOB’s orders and the disciplinary actions. The PCAOB also required each of the sanctioned firms to improve, or to comply with, already-revised policies and procedures concerning itsreporting requirements.

“Firms must not take these obligations lightly,” PCAOB Chair Erica Y. Williams said in a statement. “Failures to make required disclosures undercut the PCAOB’s ability to protect investors.”

“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,” Robert E. Rice, PCAOB director of Enforcement and Investigations, said in a statement. “Sweeps enable us to pursue these types of potential violations and will continue to be an important tool in our enforcement arsenal.”

The findings were the result of a recent sweep, which the PCAOB conducts to uncover potential failures to comply with PCAOB reporting requirements.

Earlier in the week, the PCAOB announced that it had sanctioned four other firms.

On Aug. 10, the board announced that it had sanctioned RAM Associates & Company LLC and its owner for multiple violations. According to the settled disciplinary order, the firm failed to obtain sufficient appropriate audit evidence in auditing the valuation of one client’s goodwill and using the work of a specialist retained by the client; failed to assemble for retention a complete and final set of audit documentation in a timely fashion; failed to communicate all required matters to the client’s audit committee; and failed to obtain audit committee pre-approval for tax services. The firm also violated PCAOB standards related to engagement quality reviews and violated quality control standards.   

The PCAOB charged RAM’s owner, Parameswara K. Ramachandra, with violating PCAOB rules by directly and substantially contributing to his firm’s violations. He and his firm were censured, fined $150,000, and were required to take remedial action concerning quality control. The firm’s registration was revoked and Ramachandra was barred from associating with a registered firm for at least two years. The firm and Ramachandra neither admitted nor denied the findings.

“This order highlights the importance of following PCAOB standards when evaluating critical accounting estimates such as goodwill, and the steps auditors must take when using the work of a specialist,” Rice said in a statement.

On Aug. 9, the PCAOB announced that it had sanctioned two firms. One was  Ciro E. Adams, CPA, LLC and its namesake sole partner, Ciro E. Adams, for relying too heavily on information generated by, and representations from, audit clients. According to the settled disciplinary order, the PCAOB found that, among other things, the firm and Adams failed to exercise due professional care and skepticism, and failed to obtain sufficient appropriate audit evidence with respect to testing revenue and testing a significant transaction in one client’s audits, and testing notes receivable and potential related party transactions during the audit of another client.

Adams neither admitted nor denied the findings. The firm and Adams were assessed a $40,000 civil penalty, and Adams was barred from being an associated person of a registered public accounting firm for two years. He was also required to complete 40 hours of continuing professional education (CPE) before being allowed to petition for reinstatement.

“This order underscores the diligence with which auditors must test assets and transactions significant to issuers’ financial statements,” Rice said in a statement. “These respondents relied too heavily—and sometimes exclusively—on management representations and company-prepared materials.”

The other firm was Blue and Co. LLP, which the PCAOB sanctioned for violating applicable auditor independence requirements by failing to comply with partner rotation requirements. The violations took place over two years and involved six audits of three issuer employee benefit plans.

According to the settled disciplinary order, the board imposed a civil money penalty in the amount of $75,000 on Blue and required the company to review and certify its auditor independence policies and procedures. It noted “Blue’s extraordinary cooperation in this matter, including self-reporting and remedial actions” in ordering the sanctions. “Absent this extraordinary cooperation, the civil money penalty imposed would have been significantly larger, and the Board may have imposed additional sanctions,” it stated.

“This order highlights the importance of following PCAOB standards when evaluating critical accounting estimates such as goodwill, and the steps auditors must take when using the work of a specialist,” Rice said in a statement.

And on Aug. 8, the PCAOB announced that it had imposed civil penalties on India-based K G Somani & Co. LLP and its engagement partner, Anuj Somani, in the amount of $125,000 and $50,000, respectively, for violations of various PCAOB rules and standards.

According to the settled disciplinary order, the violations included not performing all necessary audit procedures prior to the release of KGS’s audit report, failing to adequately document the audit work, and failing to properly supervise the engagement team. The firm was also found not to have the necessary policies and procedures relating to performing audits under PCAOB standards, or monitoring of its quality control system, in place.

In addition to the fines and censures, KGS and Somani must engage an independent consultant to review and make recommendations for the improvement of the company’s quality control policies and procedures. Somani was also suspended from associating with a registered public accounting firm for one year. His activities will be restricted for an additional year after that.

KGS and Somani did not admit to or deny the charges.

“Registered firms and their associated persons, wherever located, must comply with the PCAOB’s audit and quality control standards to protect investors,” Rice said in a statement. “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.”

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