PCAOB Sanctions BDO USA, P.C. and Two of Its Partners for Violations of PCAOB Rules and Audit Standards

The Public Company Accounting Oversight Board (PCAOB) today announced a settled disciplinary order sanctioning BDO USA, P.C. (“BDO” or the “Firm”) and partners Kevin Olvera and Michael Musick (collectively, “Respondents”) for violations of PCAOB rules and audit standards in connection with the audit of AAC Holdings, Inc. (“AAC”) for 2017.

The PCAOB found that the Firm and Olvera, who was serving as a partner on the audit, failed to properly evaluate three significant estimates that AAC used to value substantially all of its client-related revenue and accounts receivable. The PCAOB also found that Musick, another BDO partner, failed to exercise due professional care when performing an engagement quality review of the audit, accepting the engagement team’s judgments related to the evaluation of the significant estimates instead of identifying the deficiencies in the audit work. 

These failures occurred despite BDO, Olvera, and Musick encountering several red flags that called into question the reasonableness of the estimates. For example, BDO, Olvera, and Musick were aware that PCAOB inspectors had found deficiencies in the procedures performed to test one of the same estimates during BDO’s audit of AAC for 2015, yet the procedures performed during BDO’s 2017 audit of AAC failed to adequately address those deficiencies.

“PCAOB standards call for auditors to evaluate and respond appropriately to the significant risks they encounter during an audit,” said Robert E. Rice, Director of the PCAOB’s Division of Enforcement and Investigations. “The Respondents here repeatedly failed to meet these and other obligations, to the detriment of the investing public.”

Without admitting or denying the Board’s findings, BDO, Olvera, and Musick consented to the PCAOB’s order, which censured the Firm and imposed a $2,000,000 civil money penalty. The Board also censured Olvera, imposed a $35,000 civil money penalty, limited his ability to act in certain roles on audits for a one-year period, and required that he complete additional continuing professional education. The Board also censured Musick, imposed a civil money penalty of $25,000, and required that he complete additional continuing professional education. 

PCAOB enforcement staff members Tom McCann, Arnold Ramos, and Dave Eccard conducted the investigation, which was supervised by William Ryan and John Abell.

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.

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About the PCAOB

The PCAOB is a nonprofit corporation established by Congress to oversee the audits of public companies in order to protect investors and further the public interest in the preparation of informative, accurate, and independent audit reports. The PCAOB also oversees the audits of brokers and dealers, including compliance reports filed pursuant to federal securities laws.

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