SEC Says CPA Never Registered Firm with PCAOB, Committed 'Wholesale Failures'

Chris Gaetano
Published Date:
Apr 6, 2021

A Texas CPA is facing administrative proceedings brought by the Securities and Exchange Commission (SEC) for falsely telling clients his firm was registered with the Public Company Accounting Oversight Board (PCAOB), as well as for "wholesale failures in auditing and reviewing the financial statements of a public company client."

The CPA, Christopher Knauth, did eventually file an application to register his firm with the PCAOB but was repeatedly informed over a nine-month period, via letters, emails and phone calls, that the application was incomplete. This did not stop him from performing a 2018 audit and three interim reviews for a public company, however. Those actions, in turn, led the company itself to violate regulations, as its auditors must be board-registered by law.

Beyond just the failure to register, the SEC also said that the CPA's work was just plain bad, as there were numerous instances of failing to comply with PCAOB audit standards. The audit work papers lack sufficient documentation to determine what, if any, work was conducted. The work papers reflect no audit planning. It appears from the existing documentation that Knauth merely obtained certain limited documents from the issuer and did not perform further analysis sufficient to identify and appropriately assess the risks of material misstatement or exercise sufficient professional skepticism, including by conducting further questioning. Further, no engagement quality reviews, as required under PCAOB standards,were performed on Knauth’s audit or interim review work.

It should be noted that such problematic work is among the prime reasons why auditors are required to register with the PCAOB in the first place.

“As gatekeepers, auditors perform a critical role in maintaining investor confidence in issuers’ financial statements. Registration with the PCAOB and compliance with PCAOB auditing standards are essential to this gatekeeping function,” said Carolyn Welshhans, associate director of the SEC’s Division of Enforcement.

The Enforcement Division and Office of the Chief Accountant (OCA) allege that Knauth engaged in improper professional conduct, willfully aided and abetted and caused his firm’s failure to register with the PCAOB, and willfully aided and abetted and caused his audit client’s reporting violations. The administrative proceeding against Knauth will be scheduled for a public hearing before the SEC to determine whether the Enforcement Division and OCA have proven the allegations in the order and what, if any, remedial actions are appropriate.

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