PCAOB Sanctions Firm for "Critical Audit" Failures

The Public Company Accounting Oversight Board ("PCAOB") sanctioned an accounting firm and three associated members for having insufficient audit quality control ("QC") policies and for failing to timely file certain reporting forms.

The PCAOB found that the firm failed to establish QC policies and procedures to provide reasonable assurance that its personnel would comply with PCAOB requirements for identifying and communicating critical audit matters ("CAMS") (i.e. "any matter arising from the audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex auditor judgment."). 

In one instance, the PCAOB found that an engagement partner (i) failed to obtain audit evidence supporting the existence and valuation of a purported "Cannabis Cultivation License," (ii) "failed to adequately evaluate the presentation and disclosure of the purported Cannabis Cultivation License," and (iii) failed to "describe accurately how the engagement team addressed a CAM." In another instance, the PCAOB determined that another engagement partner failed to perform a quality review of the audit with "due professional care" and in accordance with PCAOB standards.

The Board also found the firm failed to file Form APs ("Auditor Reporting of Certain Audit Participants") within the proscribed 35-day period. In one instance, the PCAOB said the firm filed its Form AP four and a half years late. 

As a result, the PCAOB: (i) censured all parties; (ii) imposed a $75,000 fine on the firm and its president; (iii) required the firm to take remedial action to ensure that the firm's quality control practices satisfy PCAOB requirements; (iv) imposed fines on the engagement partners in the amount of $50,000 and $25,000; and (v) required continuing professional education.