PCAOB Imposes Sanctions Against Auditor who Admitted Violating Independence Requirements and PCAOB Standards
The Public Company Accounting Oversight Board today 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.
In today's order, the Board censured both Aronson and his firm, permanently revoked the firm's PCAOB registration, and permanently barred Aronson from associating with a registered public accounting firm.
"Obtaining admissions from auditors who engage in egregious misconduct enhances accountability and serves the interests of investors," said Claudius Modesti, Director of the Division of Enforcement and Investigations. "Here, Aronson and his firm engaged in precisely that sort of misconduct, violating clear requirements and standards and continuing to do so even after repeated notice."
The Board sanctions resulted from Aronson and his firm's repeated violations of auditor independence and engagement quality review requirements.
The Board found that Aronson and his firm violated PCAOB and Securities and Exchange Commission independence requirements by issuing audit reports related to public companies for which Aronson's son had acted in an accounting role during the period under audit.
"Independence is essential to maintaining auditor objectivity and public confidence in the audit process," said Modesti. "When an auditor or a close family member has an employment relationship with the audit client, independence principles are compromised."
The Board also found that the firm and Aronson failed to obtain an engagement quality review in 10 separate audits. The violations continued even after they were put on notice of the failures to obtain engagement quality 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.
"Auditors must abide by the Board's requirement for an engagement quality review, which states that no audit opinion may be released unless a qualified second auditor has performed an appropriate review of the engagement team's significant judgments and audit conclusions," Modesti said. "This is a clear and well understood requirement of Auditing Standard No. 7."
All prior Board settled orders have included language noting that the settling respondents neither admitted nor denied the Board's findings. But today's order states that Aronson and his firm admitted the facts, findings, and violations described in the order.
The investigation that resulted in the settlements announced today originated with information obtained through the Board's inspection program. PCAOB Enforcement staff members Thomas McCann, David Florenzo, Ke Xu, and Marques Jenkins conducted the investigation.
PCAOB Release No. 105-2015-034 is available on the PCAOB website.