The Public Company Accounting Oversight Board (PCAOB) in September, 2024 imposed sanctions on five audit firms for violations related to audit committee communications and failure to report disciplinary actions, highlighting ongoing concerns about audit transparency and compliance.
Crowe MacKay LLP & Grant Thornton LLP
Two firms, Crowe MacKay LLP and Grant Thornton LLP, were found in violation of AS 1215, Audit Documentation, for failing to document audit committee pre-approval of certain services. Under PCAOB standards, firms must properly document all communications regarding audit committee approvals, especially when offering non-audit services. These violations arose during engagements with specific issuers where pre-approval documentation for certain tax services was either incomplete or missing.
In the case of Grant Thornton LLP, the violation involved its audit of Patagonia Gold Corp., a mineral exploration company incorporated in British Columbia and headquartered in Buenos Aires, Argentina. During the audit of Patagonia’s financial statements for the year ended December 31, 2020, Grant Thornton Canada did not properly document audit committee approval for services provided by its affiliate, Grant Thornton UK, which performed tax return preparation services for Patagonia’s subsidiary. This failure breached PCAOB Rule 3524, which mandates that the scope, fee structure, and any other agreements related to services be clearly communicated to, and approved by, the audit committee in writing. Grant Thornton LLP was fined $30,000 for failing to document audit committee pre-approval of certain services provided during its audit of Patagonia Gold Corp..
Similarly, Crowe MacKay LLP provided services to a specific issuer but failed to document the necessary pre-approvals from the issuer’s audit committee, further compromising the oversight of the audit’s independence. Both firms were censured and fined, underscoring the PCAOB’s stringent requirements around independence and audit documentation.
Accell Audit & Compliance, P.A.
Accell Audit & Compliance, P.A. faced sanctions for violating AS 1305, Communications About Control Deficiencies in an Audit of Financial Statements. The PCAOB found that Accell failed to communicate, in writing, material weaknesses in internal controls to the audit committee of an issuer, which undermines the audit process and prevents audit committees from addressing significant financial risks.
The failure by Accell to notify the issuer’s audit committee about these internal control weaknesses could have led to inaccurate financial statements. Such issues are critical in ensuring that companies adhere to accurate financial reporting standards, and by not informing the audit committee, Accell failed in its duty to maintain transparency and protect investors.
Halpern & Associates, LLC
Halpern & Associates, LLC was fined for a separate violation related to failing to report a significant event to the PCAOB. The firm failed to report, for over two years, that it was subject to a disciplinary proceeding initiated by the U.S. Securities and Exchange Commission (SEC), violating PCAOB Rule 2203, Special Reports. This rule requires firms to report such events within 30 days on Form 3, which helps maintain transparency and allows the PCAOB to monitor ongoing issues within registered firms.
Halpern & Associates’ violation was linked to its audits of specific issuers, where deficiencies were identified. The firm’s failure to report the SEC’s action in a timely manner compromised the PCAOB’s ability to regulate its operations effectively. As a result, the PCAOB imposed a $20,000 fine and censured the firm for non-compliance with reporting obligations.
February 2024 actions by SEC
On February 20, 2024, the Public Company Accounting Oversight Board (PCAOB) imposed disciplinary sanctions against Grant Thornton Bharat LLP (GT India) due to failures in adhering to PCAOB auditing standards while auditing WNS Holdings Limited. The PCAOB found that GT India failed to communicate critical information to WNS’s audit committee, violating AS 1301 and AS 2805. Specifically, GT India did not disclose the involvement of other independent public accounting firms, such as Grant Thornton Channel Islands, Grant Thornton South Africa, and Grant Thornton UK, in the audit procedures. The firm also failed to inform the audit committee about personnel from Walker Chandiok & Co. LLP who assisted in the audit. Additionally, GT India did not provide the audit committee with a copy of management’s representation letter, which is essential for confirming management’s assertions about the financial statements. As a result of these violations, the PCAOB censured GT India and imposed a civil money penalty of $40,000, while also requiring the firm to implement measures to enhance compliance with PCAOB standards regarding audit committee communications.
In a separate but related matter, Baker Tilly US, LLP faced disciplinary actions by the PCAOB for significant deficiencies identified during audits of multiple clients, including Bridgford Foods Corporation. The PCAOB determined that Baker Tilly failed to maintain independence while providing non-audit services to clients and did not sufficiently supervise staff, leading to lapses in audit quality. The firm received a censure and was fined $175,000, alongside an obligation to enhance its internal controls and policies related to independence and audit practices. Both cases illustrate the PCAOB’s commitment to upholding auditing standards and ensuring that firms take appropriate measures to prevent deficiencies in audit quality, ultimately protecting investors and promoting the integrity of the financial reporting process.
