A pair of recent enforcement actions give audit committees some textbook reminders to keep tabs on auditors regarding their compliance with professional standards.
The Securities and Exchange Commission suspended three former BDO USA auditors over allegations of backdating audit work papers when an engagement team fell behind and couldn’t meet filing deadlines. Soon after the Public Company Accounting Oversight Board censured Deloitte Canada and fined the firm $350,000 when discovering the firm failed to comply with auditor independence rules in connection with mining company Banro.
The SEC says a former senior manager on an engagement team at BDO USA instructed the team to sign off on work papers and audit programs in their audit of 2013 financial statements for insurer Amtrust, whether the audit work associated with the documentation was finished or not. The enforcement order says the senior manager told the audit team to load and sign blank or placeholder work papers into the firm’s electronic files, with plans to complete the documentation when the work was actually finished.
The firm issued an unqualified opinion in the audit, but the engagement partner and engagement quality reviewer failed to flag the unfinished, backdated audit work, the SEC says. Without admitting or denying the SEC’s charges that the individuals violated professional standards, all three agreed to suspensions from appearing or practicing before the SEC. “BDO takes these matters very seriously and has cooperated fully with the SEC on this matter,” the firm said in a statement.
At the PCAOB, Deloitte Canada agreed to review its independence policies and procedures and report back to the board on its findings and any changes it plans to make in light of the discovery that the firm audited 2012, 2013, and 2014 financial statements for Banro while its independence was impaired.
The board says Venmyn Deloitte, formerly Venmyn Rand, was associated with Deloitte in 2012 when it provided technical mining reports that were important to financial statement assertions about gold resources and reserve estimates. Venmyn Deloitte even acknowledged publicly in 2013 and 2014 that it had responsibility for certain Banro gold resource and reserve estimates, the PCAOB says. That suggests both Deloitte Canada and Banro shared a mutual interest in Banro’s estimates being proved correct, according to the board.
The PCAOB says Deloitte Canada settled the action without admitting or denying the findings. “Deloitte Canada was, in essence, auditing its own work during the 2012 audit of Banro by relying on Venmyn’s valuation of Banro’s mining assets, in clear violation of independence rules,” said Mark Adler, acting director of enforcement and investigations at the PCAOB.
In a statement, Deloitte Canada said the issue had no impact on the company’s financial statements or the audit opinions. “Deloitte Canada made judgments at the time of the application of the independence rules,” the firm said. “The PCAOB has concluded that these judgments were not consistent with the independence rules. Deloitte Canada accepts that conclusion. Since the start of [the] PCAOB’s inquiry and as part of our annual inspections with the PCAOB, the firm has taken extensive action to address this matter and independence generally.”