Audit regulators have disciplined seven small audit firms and individuals within those firms for lapses in internal reviews of audit engagement reviews.
The Public Company Accounting Oversight Board censured the seven firms, scattered from New York to California to Texas, as well as seven individuals with each of the firms for their violations of Auditing Standard No. 7: Engagement Quality Review. The board assessed fines of $37,500 against four of the seven firms and suspended registrations for three of seven firms.
Five of the seven cases involved instances where the firms allowed clients to use their audit reports without also providing a concurring opinion of the engagement quality reviewer. In two other cases, firms and individuals at the firms violated the “cooling off” period required under AS 7, which says the engagement partner on an audit cannot subsequently perform the engagement quality review until that partner has been off the audit for two years.
The PCAOB requires engagement quality reviews to serve as a backstop against erroneous or unsupported audit opinions, said PCAOB Chairman James Doty, in a statement. “Investors rightly expect the PCAOB to hold accountable auditors who fail to adhere to these requirements,” he said. The board issued an alert in 2013 indicating it was not impressed generally with the compliance it has seen through it inspection program with the engagement quality review process.
The PCAOB said it discovered the review infractions during its routine inspections, and it set sanctions in part based on the firms’ and individuals’ willingness to resolve the issues early in the investigative process. The stiffest penalty went to Keith Zhen, a sole proprietor in New York. The firm was fined $15,000, censured, and had its registration revoked for two years. Zhen was censured and barred from being an associated person for two years. The PCAOB’s enforcement order says Zhen performed nearly a dozen engagements for five separate issuers from 2010 through 2013 without securing the required engagement quality review.
The lightest punishments went to Cowan, Gunteski & Co. and Weaver and Tidwell, which were both censured.