Accounting firm Warren Averett agreed to pay a penalty of $200,000 in resolving the first case brought by the Public Company Accounting Oversight Board (PCAOB) regarding auditor independence violations related to a firm’s membership in an accounting alliance.
Warren Averett ran afoul of PCAOB quality control standards when it audited valuations performed for an issuer by another accounting firm that sponsored an alliance of which Warren Averett was a member, the PCAOB said in a press release Tuesday. The relationship between the firms implied by the alliance could cause an investor to reasonably question the integrity of the work, the regulator noted.
“Independence violations put investors at risk by threatening the objectivity that’s essential to a high-quality audit,” said PCAOB Chair Erica Williams in the release. “The PCAOB is committed to using every tool in our enforcement toolbox to protect investors.”
The details: The audits in question included Warren Averett’s fiscal year 2019 and 2020 work at clinical-stage biotechnology company CytoDyn, which received certain valuation services from BDO during both years.
Warren Averett is a member of the BDO Alliance, through which it “touted its association with BDO and the quality denoted by the BDO brand name,” the PCAOB said in its order.
When Warren Averett audited BDO’s valuation work at CytoDyn, it “had an interest in the quality of BDO’s valuation work because Warren Averett marketed itself based on its association with the BDO Alliance and the quality denoted by the BDO brand name,” the PCAOB said. Thus, it could not guarantee its work could be judged as impartial.
Compliance considerations: Warren Averett failed to implement, effectively apply, and appropriately monitor quality control policies and procedures sufficient to provide reasonable assurance its personnel would maintain independence, according to the PCAOB. The firm “lacked any policies or procedures designed to detect or prevent auditor independence violations that might arise in connection with its membership in the BDO Alliance or any similar alliance of public accounting firms,” per the order.
In addition to the penalty, Warren Averett consented to a censure and to review its independence policies and procedures.
Firm response: “Audit quality, integrity, and compliance with professional standards are the cornerstones of Warren Averett’s assurance practice,” said the firm in an emailed statement. “Warren Averett is pleased to resolve this matter with the PCAOB and looks forward to continuing to perform high-quality audits and to work with its regulators in the best interest of the investing public.”