Modification to Settlement Recommendations for Disciplinary Proceedings

Good morning.

It is an honor to be here today with such a diverse group of advisers, accounting, auditing and financial reporting professionals. Participating on this panel is one of the highlights of my year.

First, let me say that the views I express are my own and do not necessarily reflect the views of the PCAOB as a whole or the Board or staff of the PCAOB.

Today, I would like to begin our panel discussion by sharing with you a recent modification to our settlement recommendations for certain disciplinary proceedings.

Earlier this morning, the Board announced a settled disciplinary order against David A. Aronson, CPA, and his firm, David A. Aronson, CPA, P.A., in the PCAOB's first order in which a settling respondent admitted to a disciplinary order's facts, findings, and violations. The Board's sanctions resulted from Aronson and his firm's repeated violations of auditor independence and engagement quality review requirements. The Board found that the firm and Aronson failed to obtain engagement quality reviews in 10 separate audits. The violations continued even after they were put on notice of the failures to obtain engagement reviews during two different Board inspections, where the firm agreed to inspectors' conclusions that no engagement quality review had been conducted. A further violation occurred during the Board's investigation of the matter.

Going forward, in its settlement recommendations to the Board DEI now will consider requiring admissions in appropriate matters where heightened accountability and acceptance of responsibility are in the public interest. Under this approach, in considering whether to recommend that the Board require a respondent to admit the underlying facts or the violations in a settlement, DEI will consider, among other things, whether the matter involves:

  • Egregious and intentional misconduct where the respondent knowingly and intentionally violated the applicable laws, rules or standards;
  • Misconduct that obstructs the Board's processes, such as noncooperation with an inspection or an investigation;
  • Significant harm or risk of harm to investors or the securities markets;
  • Situations where an admission can send a particularly important message to audit firms, their associated persons or to the public; and
  • Situations where the wrongdoer poses a particular future threat to investors, e.g., recidivists.

Given that DEI must balance the public interest in getting wrongdoers out of the business of public auditing against the possibility of extended nonpublic disciplinary proceedings, DEI anticipates that most of its settlement recommendations will continue to include language stating that the respondent has neither admitted nor denied the Board's findings. When accompanied by appropriate settlement terms, the without-admitting-or-denying provision is a useful mechanism for promptly resolving matters; this, serves investors by more quickly publicizing the nature of the misconduct at issue, requiring the sanctions immediately to take effect, deterring other similarly situated auditors, and freeing enforcement resources for other matters.

I look forward to our dialogue this morning and I would be happy to answer any questions.

Thank you.