PCAOB Announces Settled Disciplinary Orders Against Seven Audit Firms and Seven Individuals for Engagement Quality Review and Other Violations

The Public Company Accounting Oversight Board today announced settled disciplinary orders against seven audit firms and seven individuals for violating Auditing Standard No. 7, Engagement Quality Review, and other requirements.

"PCAOB rules require engagement quality reviews, which serve as important safeguards against erroneous or insufficiently supported audit opinions," said James R. Doty, PCAOB Chairman. "Investors rightly expect the PCAOB to hold accountable auditors who fail to adhere to these requirements."

According to the Board's orders, in five of the seven cases, firms permitted clients to use their audit reports without having an engagement quality reviewer provide a concurring approval of issuance of the report.

Two of the seven firms and two individuals associated with those firms violated the "cooling off" provision of AS No. 7, which provides that the engagement quality reviewer cannot be an individual who served as the engagement partner on either of the two preceding audits for that issuer. In these two cases, the individual served as engagement quality reviewer immediately following an audit in which the individual had served as engagement partner.

In some cases, the auditors engaged in multiple violations of the engagement quality review standard.

In addition, some of the settling respondents violated other applicable requirements. For example, in one case an individual served as lead partner on an audit for six consecutive years, in violation of independence requirements that limit such service to five consecutive years.

The firms and individuals who consented to the PCAOB's orders and the disciplinary actions for each are:

The settling firms and individuals neither admitted nor denied the findings.

"Today's settlements underscore the importance of performing engagement quality reviews in order to maintain audit quality," said Claudius B. Modesti, PCAOB Director of Enforcement and Investigations. "This requirement must be taken seriously by auditors."

In determining appropriate sanctions in these cases, the Board considered, among other factors, the settling firms' and individuals' willingness to resolve these matters early in the PCAOB's investigative process.

The investigations that resulted in the settlements announced today originated with information obtained through the Board's inspection program. PCAOB Enforcement staff members David Florenzo, Thomas McCann, Stefan Hagerup, Bernard McDonough, Mark Porter, Kimberly Kolar, James Welch, Christina Carroll, Pamela Woodward, and Marques Jenkins conducted the investigations.

The PCAOB oversees auditors' compliance with the Sarbanes-Oxley Act, professional standards, and PCAOB and SEC rules, including independence rules. Further information about the PCAOB's Division of Enforcement and Investigations may be found on the PCAOB website. Suspected misconduct by auditors can be reported to the PCAOB Tip & Referral Center.