- The Public Company Accounting Oversight Board fined Colombia-based Deloitte & Touche S.A.S. $900,000 for lax quality controls, a failure to ensure auditor independence and other errors in a 2016 audit.
- After providing the audit, several employees at the firm, also known as DT Colombia, obtained more evidence, “substantially” altered documentation and performed additional work on the audit, the PCAOB said Wednesday. DT Colombia’s quality control system failed to prevent or detect the violations.
- “Firms must establish and implement effective systems of quality control to support compliance with all relevant audit and independence requirements,” Robert Rice, director of the PCAOB’s division of enforcement and investigations, said in a statement. “When firms fail to do so, we will not hesitate to take action.”
The PCAOB has toughened enforcement and sharpened its standards since Gary Gensler, after assuming the post as chair of the Securities and Exchange Commission in April 2021, replaced board leadership and called on it to strengthen oversight of the accounting firms that audit publicly listed companies.
For example, the PCAOB on Thursday adopted a new standard that replaces a 20-year-old interim rule and tightens the requirements for auditors when verifying with a third party assertions made by a client in a financial statement.
“The new standard will help auditors detect fraud and better protect investors,” PCAOB Chair Erica Williams said in a statement.
“By replacing a confirmation standard that had not changed significantly since faxes were a regular form of communication, the board has taken an important step in modernizing our standards,” she said.
Earlier this month, the PCAOB proposed increasing the liability for accounting firms and certain auditors who were involved in violations by the lead firms overseeing an audit.
In March, the board proposed an update of “foundational” audit standards and a requirement that the deadline for filing final documentation after completion of an audit be trimmed to 14 days from 45 days.
Under the new requirements, auditors during client work would need to more actively identify, evaluate and communicate possible breaches of laws and regulations.
Regarding enforcement, the PCAOB fined BDO USA $2 million and imposed smaller penalties on two of its partners for alleged violations in an audit of AAC Holdings for 2017, the board announced Tuesday.
The BDO partners failed to properly evaluate three estimates that AAC used to value its revenue from clients and accounts receivable, the PCAOB said.
A greater number of auditors were involved in the flawed work by Bogotá-based DT Colombia, according to the PCAOB account.
After issuing the 2016 audit but prior to the documentation completion date, DT Colombia employees continued various audit procedures and obtained additional evidence from the client on revenue, interest expenses, derivatives, fair value testing and control testing, the PCAOB said.
The auditors excluded from archived work papers numerous procedures done after issuance of the audit, the board said.
“The lead partner and the engagement team failed to appropriately document in the 2016 audit file who performed the post-issuance work and the date such work was completed, as well as who reviewed the work and the date of such review,” the PCAOB said.
Immediately after issuance of the 2016 audit, DT Colombia’s national professional practice director at the time — “a senior member of the firm with significant quality control responsibilities” — tipped off the lead partner that the audit had been selected for internal inspection, the board said.
“The lead partner then told members of the engagement team about the internal inspection prior to their assembling a complete and final set of audit documentation for the 2016 audit, which led to some engagement team members making certain changes to the work papers prior to the internal inspection,” according to the PCAOB.
Additionally, DT Colombia failed to remove from the audit team two employees with financial relationships to the client.
DT Colombia consented to the PCAOB’s order without admitting or denying the findings, the board said.
DT Colombia "made significant investments in audit quality since 2016," a spokesperson said in an email confirming the settlement. "We are committed to executing high-quality audits on a consistent basis, focusing on continuous audit improvement and delivering the highest level of service."
Editor's note: The story was updated with comment from DT Colombia.