PCAOB Announces Settled Disciplinary Actions against Three Audit Firms and Three Individuals Associated With the Firms
The Public Company Accounting Oversight Board today announced settled disciplinary orders against three audit firms and three individuals associated with those firms, charging that they violated the federal securities laws and PCAOB auditing standards and rules in the audits of 10 public companies.
"PCAOB standards and the federal securities laws require auditors to undertake their critical task with care, skepticism, and independence," said James R. Doty, PCAOB Chairman. "These obligations are essential to the protection of investors and, as these cases demonstrate, the Board will not hesitate to take action against auditors who do not live up to them."
The violations include, among others, fraud, non-cooperation and lack of independence charges, as well as failures under Section 10A of the Securities Exchange Act of 1934 relating to procedures for detection of illegal acts. Each of the respondents offered to settle the charges and, in each settlement, agreed to the imposition of certain sanctions. The respondents neither admitted nor denied the Board's findings.
"Across these cases is the type of misconduct that puts investors at risk: false audit reports, failures relating to the detection of illegal acts, and a lack of independence," said Claudius B. Modesti, PCAOB Director of Enforcement and Investigations. "Investors deserve better."
The sanctions imposed on the audit firms and auditors are:
- Harris F Rattray CPA, PL, in Miramar, Florida, and its sole owner, Harris F. Rattray, CPA: The Board permanently revoked the firm's registration. The Board also permanently barred Rattray from associating with a registered firm.
- Hood & Associates CPAs, P.C., in Tulsa, Oklahoma, and its sole audit partner, Rick C. Freeman, CPA: The Board revoked the firm's registration with a right to reapply after three years, and imposed a $10,000 civil monetary penalty. The Board also permanently barred Freeman from associating with a registered firm.
- Acquavella, Chiarelli, Shuster, Berkower & Co., LLP, in New York, New York, and Iselin, New Jersey, and a former non-equity partner, David T. Svoboda, CPA: The Board revoked the firm's registration with a right to reapply after two years, and imposed a $10,000 civil monetary penalty. The Board also barred Svoboda from associating with a registered firm, with a right to petition the Board to terminate the bar after three years.
Additionally, all of the firms and individuals were censured.
The Board found that the Rattray firm and Rattray repeatedly violated the Exchange Act and PCAOB rules and auditing standards in connection with the issuance of audit reports for four issuers. The Rattray firm and Rattray violated the antifraud provisions of the Exchange Act by falsely stating in three audit opinions that the audits had been conducted in accordance with PCAOB standards. They also failed to plan and sufficiently perform work on critical aspects of the audits of three issuers and, for one of those issuers, failed to include procedures designed to provide reasonable assurance of detecting illegal acts that would have a direct and material effect on the determination of financial statement amounts.
The Board found that the Hood firm violated the antifraud provisions of the Exchange Act by issuing audit opinions for three issuers that falsely stated that they had performed the audits in accordance with PCAOB standards. Freeman directly and substantially contributed to this violation.
The Board also found that the Hood firm and Freeman failed to plan, perform, and document their audit work, failed to exercise due professional care and professional skepticism for three issuers, and failed to include audit procedures designed to provide reasonable assurance of detecting illegal acts that would have a direct and material effect on the determination of financial statements amounts for one issuer.
The Hood firm and Freeman also violated independence standards because Freeman served as lead audit partner on the audits of two issuers for more than five consecutive years. The Hood firm further failed to have a required engagement quality review performed on any of the audits and failed to comply with PCAOB quality control standards, a violation to which Freeman substantially contributed.
The Board found that the Acquavella, Chiarelli, Shuster, Berkower firm violated PCAOB quality control standards and that Svoboda substantially contributed to those violations. The Board also found that the firm and Svoboda violated PCAOB auditing standards in connection with the audits of the financial statements of two issuers based in the People's Republic of China (PRC) and one based in Hong Kong.
The Acquavella, Chiarelli, Shuster, Berkower firm assigned Svoboda to serve as the auditor with final responsibility for the audits. A significant portion of the firm's audit procedures were conducted by PRC-based staff. In each instance, the firm and Svoboda failed to adequately plan the audit, supervise and review the work of assistants, and exercise due professional care.
The Acquavella Chiarelli, Shuster, Berkower firm and Svoboda also violated the independence provisions of the federal securities laws because the firm and Svoboda prepared the consolidation and financial statements that formed the basis of two issuers' financial statements filed with the Securities and Exchange Commission. Svoboda further failed to cooperate with Board inspectors and violated audit documentation standards in connection with the PCAOB inspection of the firm by improperly causing the creation or alteration of audit documentation after receiving notice of a PCAOB audit inspection without indicating when the documents were altered or added to the working papers, by whom, or why.
PCAOB Enforcement staff members Alan Lo Re, Michelle Jaconski, Michael Occhuizzo, David Ware, Margaret Vizzi, Bryant Coleman, Pamela Woodward, and Tima Hawes conducted the investigations.
Suspected misconduct by auditors can be reported to the PCAOB Tip & Referral Center.