BDO was assessed a $2 million penalty as part of a settlement with the Public Company Accounting Oversight Board (PCAOB) addressing alleged failures in the firm’s audit work at defunct healthcare services provider AAC Holdings.
The PCAOB also disciplined two BDO partners regarding the matter, which was announced in a press release Tuesday.
The penalties related to violations of PCAOB rules and audit standards during the firm’s 2017 audit at AAC.
The details: BDO’s 2015 audit of AAC was among those reviewed by the PCAOB during its 2016 inspection cycle, according to the regulator’s order. The PCAOB found then that BDO failed to perform sufficient procedures to test AAC’s valuation of accounts receivable and warned the firm.
Despite the notice, BDO did not properly evaluate AAC’s accounts receivable allowance during its 2017 audit, per the order. The firm’s engagement team failed to understand how AAC management developed its allowance estimate and key assumptions and did not adequately test AAC’s process for developing the estimate and related assumptions, according to the PCAOB.
“Instead, the engagement team … concluded that the [2017 allowance] was a reasonable estimate based primarily on their reliance on a flawed ‘hindsight analysis’ that had been developed by AAC and which inappropriately compared gross and net numbers,” the PCAOB said.
AAC would ultimately restate its 2017 annual financial statements and its prior-year annual financial statements, reducing reported accounts receivable by 32 percent and 47 percent, respectively. The company filed for bankruptcy in June 2020.
BDO Partner Kevin Olvera served as focused consulting reviewer on the 2017 AAC audit, while Michael Musick was the engagement quality review partner. Olvera was fined $35,000 and consented to a one-year limit on his audit activities for failing to properly evaluate AAC’s estimates, while Musick must pay $25,000 for failing to exercise due professional care in his role, the PCAOB ordered.
Firm response: “At BDO, we adhere to the highest standards of excellence across all areas of our business and fully support the PCAOB’s goal of protecting investors and furthering the public interest,” a firm spokesperson said in an emailed statement. “We are pleased to have resolved this matter. We remain dedicated to performing audits in accordance with professional standards.”
BDO neither admitted nor denied the PCAOB’s findings.