Canada-based accounting firm Smythe agreed to pay a $175,000 penalty in settling with the Public Company Accounting Oversight Board (PCAOB) regarding its use of unregistered firms across four issuer audits.
Smythe overrelied on the work of PKF Audisur and PwC Malta in violation of PCAOB rules, the agency said in a press release Tuesday. The PCAOB required Smythe to review and evaluate its quality control policies and procedures, among its remedial mandates.
The details: Smythe used the work of PKF Audisur on its audits of the fiscal year 2020 and 2021 financial statements of wireless infrastructure company Tower One and the work of PwC Malta on its audits of the FY2020-21 financials of merchant bank Scully.
In doing so, Smythe had the unregistered firms performing more than 20 percent of the total audit hours and/or incurring more than 20 percent of the total audit fees—figures that constitute substantial role participation, the PCAOB said in its order.
Firms are required to register with the PCAOB before playing a substantial role in issuer audits.
Compliance considerations: Smythe was faulted for failing to:
- Adequately plan the audits;
- Coordinate its activities with the unregistered firms;
- Perform adequate analysis to determine whether it could serve as principal auditor; and
- Establish and implement adequate quality control policies and procedures concerning the use of the work of other accounting firms.
“When an audit of a public company involves multiple audit firms, the principal auditor must plan on not only using PCAOB-registered firms if they play a substantial role but also on coordinating appropriately with them,” said Robert Rice, director of the PCAOB’s Division of Enforcement and Investigations, in the release.
The agency has cracked down on auditor use of unregistered firms over the past two years.
Firm response: “The fine issued by the PCAOB solely relates to our interpretation of the rules relating to our use of external firms not registered with the PCAOB for two of our 2020/2021 U.S.-registered public company clients,” said Smythe Manager Partner Bob Sanghera in an emailed statement. “There was no impact to the financial statements or audit opinions. We have since clarified and addressed this issue moving forward.”