PCAOB Censures and Fines Deloitte $500,000 for Material Accounting Errors It Missed in 3 Consecutive Audits of Jack Henry
The Public Company Accounting Oversight Board today announced a censure and $500,000 civil money penalty against Deloitte & Touche LLP to settle charges that it missed material accounting errors in three consecutive audits of Jack Henry & Associates, Inc., a Missouri-based provider of information processing solutions for banks and credit unions.
The PCAOB charged Deloitte with violating Board rules and auditing standards in its fiscal year 2012, 2013, and 2014 audits of Jack Henry. The PCAOB found that Deloitte was primarily responsible for the violations because none of the engagement personnel it assigned to the audits had sufficient software industry experience and knowledge (including of the relevant generally accepted accounting principles) to properly evaluate and audit the accounting for software license revenue.
"Audit quality depends on firms assigning people with the right skills to each engagement," said PCAOB Chairman William D. Duhnke. "Audit firms also should encourage even the most experienced auditors to seek help when the situation requires it."
The accounting errors and audit failures concerning software license sales first came to light after the PCAOB notified Deloitte in late 2014 that it would be inspecting the Jack Henry audit. In preparation for the inspection, Deloitte reviewed its audit work and found errors in how Jack Henry accounted for software license revenue and deficiencies in the firm's auditing of that area.
In June 2015, Jack Henry restated its financial statements for those fiscal years, acknowledging that revenue had been prematurely recognized.
In December 2016, the SEC instituted cease-and-desist proceedings and imposed a $780,000 civil money penalty against Jack Henry for failing to properly report revenue from its software license sales in the correct accounting periods. The SEC said that Jack Henry's failures were caused by inadequate internal control surrounding revenue recognition.
Deloitte consented to the Board's order without admitting or denying the findings. In addition to the censure and fine, Deloitte certified that it had enhanced its use of industry expertise as part of its quality control processes in two ways: first, for matching engagement partners and quality reviewers to their assigned audits; second, for assigning reviewers to its internal inspections of audits. Deloitte also agreed to notify the PCAOB staff of any repeal of those enhancements for three years.
PCAOB enforcement staff members Mark W. Porter, Rebecca J. Mealey, and Judy W. Fish conducted the investigation of this matter, which was supervised by Marion E. Koenigs and William F. Ryan. The PCAOB thanks the SEC, particularly the Chicago Regional Office, for its assistance in 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 use the PCAOB Tip & Referral Center.