The Public Company Accounting Oversight Board has settled two disciplinary orders against Deloitte affiliates in Brazil and Mexico involving charges of issuing false audit reports and failing to properly control audit documentation.
In Brazil, the PCAOB will collect from Deloitte Touche Tohmatsu Auditores Independentes a civil penalty of $8 million, the largest fine ever imposed by the PCAOB and the first case where the PCAOB has obtained an admission from a global network firm. The PCAOB says in its enforcement order the firm issued materially false audit reports and attempted to cover audit violations by altering documentation and providing false testimony.
Deloitte Brazil admitted it violated quality control standards and failed to cooperate with a PCAOB inspection and investigation, the PCAOB said. The board also sanctioned 12 former partners and other audit personnel at the firm, including members of firm leadership, for noncooperation with the inspection and investigation.
The PCAOB says Deloitte Brazil knowingly issued materially false audit reports for the 2010 financial statements and internal control report of a Brazilian airline. Then before an inspection in 2012, the firm’s audit practice leader directed junior personnel to alter work papers to conceal known audit deficiencies, according to the PCAOB. Even as investigators probed, the firm took additional steps to conceal audit defects and work paper alterations with the knowledge and participation of senior leaders in the firm, the board says.
PCAOB Chairman James Doty said he and the enforcement staff do not regard the case brought against Deloitte Brazil to represent an outlier in terms of global approaches to auditing. However, the continued secrecy afforded to the PCAOB’s enforcement activities under Sarbanes-Oxley prevents visibility into the extent of the concerns that might be brewing.
“We have viewed this as an ongoing problem,” said Doty. “Not one that is sproadic, but a phenomenon of global audit that requires independent oversight by a vigorous, confident, well-staffed oversight agency — us — to go and find these problems and send a message through enforcement.”
In Mexico, the PCAOB says it has censured Deloitte affiliate Galaz, Yamazaki, Ruiz Urzuiza and levied a $750,000 civil penalty after the firm failed to effectively implement quality polices and procedures for audit documentation. The board says from 2011 to 2015 the firm failed to archive audit documentation for numerous public company audits in accordance with standards.
The board also took action against two former Deloitte Mexico partners and a former auditor for violations that included audit deficiencies and improper work paper alterations connected with a 2010 audit of a U.S.-based mining company. Deloitte Mexico also agreed to undertake significant remedial measures designed to prevent future violations, the PCAOB said.
The board indicated both cases were referred to the enforcement office as a result of audit inspections. The board has access to inspect in most countries where registered firms are doing business, but China remains the major exception. Doty would not speculate on whether a new presidential administration might have any effect on the board’s ability to gain inspection access to China.
Deloitte Global issued a statement on the actions, reiterating the firm's commitment to integrity. "A limited number of individuals in member firms have acted in ways that are inconsistent with this fundamental requirement," said a spokesman. "This is wholly unacceptable, and in each instance, the member firm has worked diligently with regulators to address and resolve the issues through appropriate compliance, quality control and personnel actions." The firm has enahcned its global focus on appropriate compliance and quality controls measures, she said, and "the lessons learned from these matters have already made our culture stronger."