The Public Company Accounting Oversight Board (PCAOB) announced several notable enforcement actions last week, including sanctions against six firms for allegedly violating agency reporting requirements.
Grant Thornton received the largest penalty of the bunch ($40,000) when the PCAOB announced its disclosure sweep Dec. 22. The firm, along with four others, was faulted for failing to meet Form 3 requirements regarding disclosure when the firm becomes aware it or its employees are a respondent in certain disciplinary proceedings and the conclusion of those proceedings.
Grant Thornton also did not timely disclose in 2020 it obtained 12 new or replacement licenses in 11 jurisdictions, as required under Form 3, according to the PCAOB.
“Grant Thornton has implemented enhanced policies and processes to ensure the firm meets all reporting requirements,” a spokesman for the firm said in an emailed statement. “Quality is the foundation of all we do and will continue to be our principal focus. We appreciate the Public Company Accounting Oversight Board’s commitment to this shared goal.”
Grant Thornton’s Brazilian subsidiary was among other firms penalized for disciplinary proceeding disclosure failures, receiving a $20,000 fine. Also disciplined were a KPMG unit in South Korea ($30,000 fine) and BDO unit in Brazil ($30,000). U.S.-based KCCW Accountancy Corp. ($20,000) rounded out the group.
The sixth firm fined in the sweep was MaloneBailey for “repeated failures since 2018” to timely disclose on Form 3 when former clients had not filed Forms 8-K with the Securities and Exchange Commission following the end of the firm’s relationship with those clients. MaloneBailey agreed to pay $25,000.
None of the six firms admitted or denied the PCAOB’s findings.
EY Canada partner barred for ‘flawed auditing’
The PCAOB on Dec. 22 announced a settlement with Martin Lundie, an EY Canada engagement partner, for violating the agency’s rules and standards regarding management estimates during a 2019 audit.
Lundie was barred from association with a registered firm for at least one year and agreed to pay a $65,000 penalty for his alleged lapses during his work at Canada-based Just Energy Group. The PCAOB found Lundie failed to adequately evaluate the allowance Just Energy recorded against its customer receivables during the audit.
“When auditors identify estimates and other aspects of financial statements as significant or as presenting higher risk, they cannot stop there,” said Mark Adler, acting director of the PCAOB’s Division of Enforcement and Investigations, in a press release. “Under PCAOB auditing standards, those assessments mean a heightened need to exercise due care, obtain appropriate audit evidence, and evaluate the sufficiency of that evidence.”
Lundie did not admit or deny the agency’s findings in reaching settlement.
A spokeswoman for EY Canada did not return a request for comment.
Alvarez & Associates suspended, ordered to improve quality controls
The PCAOB on Dec. 21 settled with California-based Alvarez & Associates and its majority owner Vicente Alvarez regarding alleged violations of agency rules affecting 43 separate audits.
The firm and Alvarez were each suspended two years and jointly fined $50,000 for “failing to establish an appropriate system of quality control to ensure firm personnel complied with professional standards,” the PCAOB noted. In the 43 audits, the firm and Alvarez allegedly failed to assemble a complete and final set of audit documentation in a timely manner. The firm’s engagement team was further found to have modified audit documentation after the document completion date without specifying the changes made in 25 separate audits.
“You simply cannot have high audit quality without sound quality control,” said Adler in a press release. “In this case, the failures not only reduced audit quality; they also hindered the PCAOB’s review of the engagements.”
Without admitting or denying the agency’s findings, Alvarez & Associates agreed to enhance its quality control procedures, while Alvarez must complete 40 hours of additional continuing professional education.
Alvarez & Associates did not respond to a request for comment.