The Public Company Accounting Oversight Board censured and fined two audit firms—Marietta, GA-based Goldman & Co. CPAs $25,000 and Montreal-based Raymond Chabot Grant Thornton $30,000—on July 11 for eschewing U.S. auditing rules related to audit records and disclosure of key information to investors.
Then later that same day, the audit regulator censured and fined Houston-based accounting firm PWR CPA $60,000 for failing to conduct inquiries regarding fraud risks and other repeated violations.
First up is Goldman & Co. CPAs, which the PCAOB says failed to timely assemble a complete and final set of audit documentation in connection with the audit of a broker-dealer, in violation of AS 1215, Audit Documentation.
In its disciplinary order, the PCAOB wrote:
The Firm audited Broker-Dealer A’s financial statements for the year ended December 31, 2022, and issued its audit report on March 30, 2023. The documentation completion date for the audit was no later than May 14, 2023 (45 days after the report release date).
On May 31, 2023, the PCAOB’s Division of Registration and Inspections notified the Firm that the Broker-Dealer A audit had been selected for review as part of a PCAOB inspection. Following that notification, Firm personnel made changes to 28 work papers and added four work papers to the audit documentation between June 6 and June 22, 2023. The added and altered work papers related to, among other things, risk assessment, cash, notes payable, prepaids and other assets, income statements, income taxes, equity, investments, and system and organization controls report review.
As evidenced by the numerous additions and alterations that were made to the work papers weeks after the documentation completion date, the Firm failed to assemble a complete and final set of audit documentation for retention by May 14, 2023.
Because the Firm failed to assemble a complete and final set of audit documentation for retention within 45 days after the report release date, the Firm violated AS 1215.
Without admitting or denying the findings, Goldman & Co. CPAs consented to the censure and fine and agreed to review and certify its audit documentation policies and procedures and ensure annual training concerning audit documentation requirements.
Next, Raymond Chabot Grant Thornton failed to report key information on Form 3 within the required timeframe, the PCAOB said.
PCAOB Rule 2203, Special Reports, requires registered firms to file a Form 3 disclosing certain reportable events listed in that form within 30 days of the occurrence of those events. Two such events are the initiation of various disciplinary proceedings involving a firm and its personnel, as well as the conclusion of such proceedings.
The PCAOB said Raymond Chabot Grant Thornton didn’t timely report the initiation and conclusion of three proceedings brought against it by an unnamed local regulator.
In its disciplinary order, the PCAOB wrote:
In April 2022, Raymond Chabot became aware that the Regulator had initiated and concluded a proceeding against the Firm pertaining to professional services performed for Firm clients (“April 2022 Proceeding”).
In February 2023, Raymond Chabot became aware that the Regulator had initiated and concluded another proceeding against the Firm pertaining to professional services performed for Firm clients (“February 2023 Proceeding”).
In February 2024, Raymond Chabot became aware that the Regulator had initiated a third proceeding against the Firm pertaining to professional services performed for a Firm client (“February 2024 Proceeding”). In March 2024, Raymond Chabot became aware that the Regulator had concluded the February 2024 Proceeding.
Raymond Chabot’s internal compliance and reporting systems failed to identify the initiation and conclusion of the three proceedings as being reportable to the PCAOB on Form 3 on a timely basis. As a result, Raymond Chabot inappropriately failed to notify the PCAOB of six reportable events concerning relevant proceedings by the applicable deadline, in violation of PCAOB Rule 2203.
The initiation and conclusion of each of these proceedings constituted a reportable event under Form 3. Accordingly, the Firm was required to report those events to the PCAOB on Form 3 within thirty days of their occurrence. However, despite being aware of the initiation and conclusion of each proceeding on or around the date they occurred, the Firm failed to report each of these events until December 19, 2024. Those Form 3 filings came approximately 32 months after the initiation and conclusion of the April 2022 Proceeding, 22 months after the initiation and conclusion of the February 2023 Proceeding, and 9 months after the initiation and conclusion of February 2024 Proceeding.
Raymond Chabot’s internal compliance and reporting systems failed to identify the initiation and conclusion of the three proceedings as being reportable to the PCAOB on Form 3 on a timely basis. As a result, Raymond Chabot inappropriately failed to notify the PCAOB of six reportable events concerning relevant proceedings by the applicable deadline, in violation of PCAOB Rule 2203.
Without admitting or denying the findings, Raymond Chabot Grant Thornton agreed to the censure and fine. The PCAOB also is requiring the firm to comply with its previously revised policies and procedures concerning PCAOB reporting requirements.
“Failures to document required audit work or to make required disclosures on time undermine trust in the audit and prevent investors and others from accessing important information,” PCAOB Chair Erica Williams said in a statement.
Lastly, PWR CPA was deemed to have violated PCAOB rules and standards in connection with its audit of medical and healthcare solutions provider Ainos Inc. for the year ended Dec. 31, 2022, as well as repeated failures to comply with PCAOB reporting requirements with respect to four additional issuer audits.
PCAOB standards require auditors to perform risk assessment procedures that are sufficient to provide a reasonable basis for assessing the risks of material misstatement, whether due to error or fraud, and designing further audit procedures, the audit regulator said. The PCAOB found that PWR CPA failed to meet these requirements, thus increasing risk to investors.
The violations committed by PWR CPA include:
- Failing to perform required risk assessment procedures and not properly evaluating certain matters for determination as critical audit matters during its 2022 audit of Ainos;
- Failing to conduct inquiries of Ainos’ audit committee concerning fraud risks; and
- Failing to timely file nine required Form APs disclosing certain audit participants and failing to submit a required Form 3 to disclose that the firm had taken on as a partner an individual who had been barred by the Securities and Exchange Commission from practicing before it as an accountant.
For each audit report that they issue for a public company, PCAOB-registered accounting firms are required to file a Form AP. Through this form, accounting firms disclose key information specific to the audit, such as the engagement partner responsible for the audit, details about the audit report, and the participation of other accounting firms in the audit.
According to the PCAOB, between June 2020 and May 2023, PWR CPA failed to timely file nine Form APs relating to its audits of financial statements for five issuers: Ainos, ADMQ, Rapid Therapeutic, Reliant Holdings, and StemGen.
The PCAOB also noted in its disciplinary order:
PCAOB Rule 2203 provides that a registered public accounting firm must file a special report on Form 3 to report any event specified in that form within thirty days of the event’s occurrence. One such specified reportable event occurs when, “[t]he Firm has taken on as an employee, partner, shareholder, principal, or member, or has otherwise become owned or partly owned by, a person who is currently the subject of a Commission order suspending or denying the privilege of appearing or practicing before the Commission.”
On February 6, 2020, the SEC issued an Order Making Findings and Imposing Remedial Sanctions pursuant to Section 4C of the Securities Exchange Act of 1934 and Rule 102(e) of the Commission’s Rules of Practice against LBB & Associates Ltd., LLP and Carlos Lopez, CPA (“Lopez”). The SEC order found that Lopez engaged in improper professional conduct in connection with three audits of an issuer. The SEC’s order denied Lopez the privilege of appearing or practicing before the Commission as an accountant, with the right to request the Commission consider reinstatement after two years.
On June 9, 2020, the Firm added Lopez to the Firm’s partnership, which constituted a reportable event. Accordingly, the Firm was required to report that event to the Board on Form 3 within thirty days of its occurrence, i.e., not later than July 9, 2020. However, the Firm did not file a Form 3 reporting the event until January 23, 2024, more than three and a half years after the applicable deadline.
As a result, the Firm violated PCAOB Rule 2203.
Without admitting or denying the findings, PWR CPA consented to the censure and fine. The settlement with the PCAOB also requires PWR CPA to undertake remedial measures to establish, revise, or supplement, as necessary, policies and procedures (including monitoring procedures) to provide it with reasonable assurance that its personnel will comply with board filing requirements and standards regarding communications with audit committees in an audit, prior to submitting any future PCAOB registration application, and to provide documented evidence of such actions with any future submission.
“When auditors fail to appropriately evaluate fraud and other risks, they undermine investor protection,” Williams said.
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