Imposing $2 Million in Fines, PCAOB Sanctions WithumSmith+Brown, PC for Pervasive Quality Control Violations Involving SPAC Audits

The Public Company Accounting Oversight Board (PCAOB) today announced a settled disciplinary order sanctioning WithumSmith+Brown, PC (“the firm”) for violations of PCAOB rules and quality control standards.

From January 2020 through December 2021, WithumSmith+Brown, PC accepted a substantial number of special purpose acquisition company (SPAC) audit clients, resulting in a dramatic increase in its issuer audit practice and putting a significant strain on its quality control system. In 2021, for example, the firm’s issuer audit practice increased almost 500%, from approximately 80 audit reports to almost 450. Yet the number of partners assigned to these audits increased by only 50% (from 15 to 23). The firm’s quality control system failed to provide reasonable assurance that its personnel complied with applicable professional standards and regulatory requirements, including those related to appropriately staffing issuer audits.

“Growth must not come at the expense of quality. The PCAOB will hold firms accountable for upholding quality control systems that protect investors,” said PCAOB Chair Erica Y. Williams.

The PCAOB found that the firm’s system of quality control failed to provide reasonable assurance that the firm would:

• Undertake only those issuer engagements that the firm could reasonably expect to be completed with professional competence and appropriately consider the risks associated with providing professional services in the particular circumstances;
• Ensure that partner workloads were manageable to allow sufficient time for engagement partners to discharge their responsibilities with professional competence and due care;
• Ensure that personnel were consulting with individuals within or outside the firm, when appropriate, when dealing with complex issues;
• Perform sufficient procedures to test estimates, including sufficiently evaluating the reasonableness of certain significant assumptions underlying the estimate;
• Make all required communications to issuer audit committees;
• Perform sufficient procedures to determine whether certain matters were critical audit matters;
• Perform sufficient procedures to test journal entries; and
• Timely and accurately file Form APs.

“Today’s order should serve as a stark reminder that firms must have both the staff and necessary expertise to perform the audits they agree to perform,” said Robert E. Rice, Director of the PCAOB’s Division of Enforcement and Investigations. “If they do not, we will hold them accountable for those failures.”

The firm settled with the PCAOB, without admitting or denying the findings, and consented to a disciplinary order imposing a $2 million civil money penalty on the firm and requiring the firm to engage an independent consultant who will review and make recommendations concerning the firm’s quality control policies and procedures. The firm is also required to conduct certain training for all audit staff.

PCAOB enforcement staff members Stephen D’Angelo, Stefan Hagerup, Khristoph Becker, Dillon Fitzgerald and K Lynn Dunston conducted the investigation. Kyra C. Armstrong and John Abell supervised this matter.

The PCAOB oversees auditors’ compliance with the Sarbanes-Oxley Act, provisions of the securities laws relating to auditing, professional standards, and PCAOB and SEC rules. Further information about the PCAOB Division of Enforcement and Investigations is available on the PCAOB website.

Firms or individuals wishing to report suspected misconduct by auditors, or to self-report possible misconduct, may visit the PCAOB Tips and Referrals page.