Enforcement

The PCAOB has authority to investigate and discipline registered public accounting firms and persons associated with those firms for noncompliance with the Sarbanes-Oxley Act of 2002, the rules of the PCAOB and the Securities and Exchange Commission, and other laws, rules, and professional standards governing the audits of public companies, brokers, and dealers. When violations are found, the PCAOB can impose appropriate sanctions. 

Staff Update: Recent Enforcement & Investigations Activity

As stated in the Board’s Strategic Plan, we prioritize our enforcement and investigative efforts to address those issues that pose the greatest risk to investors and are most likely to deter improper conduct. In 2019, we have focused our work—both domestic and international—on three core priorities:

  • Significant audit violations, including those involving a lack of due professional care and professional skepticism;
  • Matters relating to the independence and integrity of the audit; and,
  • Matters threatening the integrity of the Board’s regulatory oversight process (e.g., non-cooperation with PCAOB inspections and enforcement).

Through our focus on these core priorities, we have deterred improper conduct and thereby improved audit quality.  For example, we have observed an increase in firms self-reporting instances of improper work paper alterations, which we encourage through the Board’s extraordinary cooperation policy.  We have also seen a decrease in cases in which auditors have prepared their broker-dealer clients’ financial statements or failed to obtain engagement quality reviews.

As we work to execute the Board’s Strategic Plan, we will continue to pursue cases that have the greatest potential to drive improvements in audit quality.

As of November 30, 2019, the Board has published final orders addressing conduct in several areas, including: significant audit violations, independence violations, quality control deficiencies, improper alteration of documents, violations of a Board order, and untimely reporting.

  

Settled Disciplinary Orders & Adjudicated Final Board Actions Imposing Sanctions in Disciplinary Proceedings

The Board has issued a number of significant orders this year, including the following:

  • Deloitte Anjin LLC, Seul Hyang Wee, and Hyun Seung Lee: The Board sanctioned Deloitte Korea for violations of the Board’s quality control standards and two former partners of the firm for improperly altering audit documentation in anticipation of a PCAOB inspection. After receiving notice the PCAOB would inspect the firm in 2014, firm personnel backdated work papers to conceal the fact that work was performed after issuance of the audit report and altered work papers to add descriptions of procedures. Wee and Lee, the partners overseeing the audit, participated in backdating and failed to disclose the misconduct to inspectors. Press Release

    Castillo Miranda y Compañía et al.:
    The Board sanctioned BDO Mexico and six partners of the firm for violating PCAOB auditing and quality control standards by engaging in misconduct that included improperly altering audit documentation in multiple audits. Beginning in 2015, the firm and its personnel failed to timely archive issuer audit documentation, improperly altered work papers, and backdated work papers. In connection with a PCAOB inspection in 2017, the firm and its personnel provided inspectors with improperly altered work papers and other misleading information. Press Release
  • Marcum LLP and Alfonse Gregory Giugliano, CPA: The Board sanctioned an annually inspected firm for violations of auditor independence requirements and failures in the firm’s system of quality control, after the firm advocated its audit clients as investment opportunities in connection with the firm’s annual investor conference. The Board also sanctioned the firm’s then-head of independence for substantially contributing to the independence violations. Press Release
  • PricewaterhouseCoopers, S.C.: The Board sanctioned a Mexico-based firm who violated independence requirements because six partners had prohibited loans or brokerage accounts with one of the firm’s banking clients. The firm also failed to timely communicate these independence violations in writing to the client’s audit committee and failed to establish and monitor adequate quality control policies and procedures with respect to auditor independence and audit committee communications.
  • William Trainor, CPA: The Board sanctioned an engagement partner who improperly determined in the face of contrary audit evidence that an issuer’s deficiencies in internal control over financial reporting were mitigated by other controls, representing the Board’s first settled order primarily concerning a large firm engagement partner’s improper evaluation of internal control over financial reporting.

  • Timothy M. Kosiek: The Board sanctioned an engagement partner who failed to follow-up appropriately after learning that a banking regulator had raised concerns about his client’s allowance for loan and lease losses.

  • KPMG Audit Limited and Damion J. Henderson, CA: The Board sanctioned a Bermuda-based firm and its head of ethics and independence for failures in the firm’s system of quality control, after firm personnel participated in recreating and backdating independence confirmations in advance of a Board inspection.

  • Wayne J. Kaplan, CPA: The Board sanctioned an engagement quality reviewer for failing to evaluate adequately the engagement team’s audit work with respect to significant risk areas, such as the company’s allowance for loan losses, representing our first settled order against an engagement quality reviewer from a large U.S. firm for failing to perform a sufficient engagement quality review.

To review all of the PCAOB's settled disciplinary orders and public adjudicated disciplinary orders imposing sanctions, please click on the links below.

Enforcement Actions & Sarbanes-Oxley Requirements

The PCAOB uses its disciplinary authority to demonstrate that auditors who run afoul of their professional obligations will face real consequences. The Board also takes disciplinary action against auditors who threaten the PCAOB's regulatory processes, such as by failing to cooperate with a PCAOB inspection or investigation. The PCAOB may impose a range of sanctions on an auditor, including a censure, monetary penalties, revocation of a firm's registration, and a bar on an individual's association with registered accounting firms.

As required by the Sarbanes-Oxley Act, the PCAOB keeps its investigations and disciplinary proceedings confidential and nonpublic. In addition, if a respondent in a contested disciplinary proceeding petitions for SEC review of a Board-imposed sanction (or the SEC elects to review the sanction on its own), the Act provides that the sanction is stayed pending further action by the SEC. Normally, SEC review proceedings are public pursuant to Rule 301 of the SEC’s Rules of Practice.

However, the Act prohibits the PCAOB from publicly reporting the sanction unless and until the SEC lifts the stay. Accordingly, even after the PCAOB hearing officer issues an initial ruling that violations have occurred and imposes sanctions and the Board has acted on an appeal, if any, information about the matter remains unavailable to the public, at least until the case is appealed to the SEC, the SEC elects on its own to review the Board's final decision, or the opportunity for SEC review has passed.