PCAOB Sanctions Firm and Three Individuals for Violations Related to Quality Control, Audit Failures, Form AP Deadlines

The Public Company Accounting Oversight Board (PCAOB) today announced a settled disciplinary order sanctioning L&L CPAs, PA (“L&L”), its President, Weixuan Tracy Luo (“Luo”), engagement partner Andy Chow (“Chow”), and engagement quality reviewer Robert Kinzer (“Kinzer”), for violations of PCAOB rules and standards. The order sanctions L&L for having insufficient quality control (QC) policies and procedures related to reporting critical audit matters (CAMs) and for failing to file Form APs – which disclose who led specific audits for the firm and whether any other firms were involved in those audits – in a timely manner. The order also sanctions Luo for contributing to L&L’s QC violations, and Chow and Kinzer for violating PCAOB rules and standards on the audit of the financial statements of Sugarmade, Inc. for the fiscal year ended June 30, 2021.

“Critical audit matters are meant to inform investors and others about significant matters in the audit and how they were addressed,” said PCAOB Chair Erica Y. Williams. “The PCAOB expects all firms to develop appropriate policies and procedures so that this important information is timely and accurately reported.”

Specifically, the PCAOB found the following:

• L&L failed to establish QC policies and procedures to provide reasonable assurance that its personnel would comply with PCAOB requirements for identifying and communicating critical audit matters. L&L also failed to timely file Form APs for two audits.
• Luo directly and substantially contributed to L&L’s QC violations.
• For the Sugarmade audit, engagement partner Chow failed to (1) obtain sufficient appropriate audit evidence to support the existence, valuation, presentation, and disclosure of a purported intangible asset that represented over 50% of Sugarmade’s total assets and (2) accurately describe in the audit report how the engagement team addressed a critical audit matter.
• Kinzer failed to perform his engagement quality review of the Sugarmade audit with due professional care and in accordance with PCAOB standards.

“Firms must have quality control systems in place to ensure compliance with PCAOB rules and standards, and firm personnel must conduct audits with due professional care and professional skepticism, particularly when auditing high-risk accounts and evaluating potential CAMs,” said Robert E. Rice, PCAOB Director of Enforcement and Investigations. “This case is another example of the PCAOB holding firms and auditors accountable for violations of core PCAOB rules and standards.”

Without admitting or denying the Board’s findings, L&L, Luo, Chow, and Kinzer settled with the PCAOB and consented to the disciplinary order, which includes the following sanctions:

• L&L and Luo were censured and agreed to pay a civil money penalty of $75,000, jointly and severally.
• Chow was censured, agreed to pay a $50,000 civil money penalty, and was barred from being an associated person of a registered public accounting firm with a right to seek Board consent to terminate the bar after one year and with a requirement to complete 50 hours of continuing professional education (CPE) before seeking Board consent to terminate his bar.
• Kinzer was censured and agreed to pay a $25,000 penalty. In addition, limitations were placed on his activities for one year, with a requirement to complete 50 hours of CPE.

PCAOB enforcement staff members Melissa Handrigan, Jud Palardy, Sarah Wang, and Tima Hawes conducted the investigation. Kyra Armstrong, William Ryan, 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.

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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 registered with the Securities and Exchange Commission, including compliance reports filed pursuant to federal securities laws.

Contact

PCAOB Office of Communications and Engagement
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