PCAOB Sanctions Smythe LLP for Improper Use of Unregistered Firms in Four Audits

The Public Company Accounting Oversight Board (PCAOB) today announced a settled disciplinary order sanctioning Smythe LLP (“Smythe” or the “Firm”) for violations of PCAOB rules and quality control standards in connection with four audits.

The PCAOB found that Smythe used the work of two public accounting firms not registered with the PCAOB – PKF Audisur and PwC Malta– in a substantial role capacity in four issuer audits. In connection with those audits, Smythe repeatedly violated PCAOB rules and professional standards. 

“Improper use of unregistered firms puts investors at risk, and the PCAOB will take action to hold firms accountable,” said PCAOB Chair Erica Y. Williams.

Smythe failed to evaluate the professional reputation of the unregistered firms with due professional care, despite knowing that the unregistered firms performed more than 20% of total audit hours or incurred more than 20% of the total audit fees (the material services threshold for substantial role participation requiring Board registration). In certain audits, participation by one of the unregistered firms far exceeded the material services threshold of 20%.

As described in the order, Smythe: 

• Failed to adequately plan the audits, 
• Failed to coordinate its activities with the unregistered firms,
• Failed in certain audits to perform an adequate analysis to determine whether it could serve as principal auditor, and 
• Failed to establish and implement adequate quality control policies and procedures concerning the use of the work of other accounting firms.

“When an audit of a public company involves multiple audit firms, the principal auditor must plan on not only using PCAOB-registered firms if they play a substantial role, but also on coordinating appropriately with them,” said Robert E. Rice, Director of the PCAOB’s Division of Enforcement and Investigations, “As today’s order shows, when firms fail to do so, we will take action.”

Without admitting or denying the Board’s findings, Smythe consented to the PCAOB’s order, which censured the Firm and imposed a $175,000 civil money penalty. Smythe is also required to undertake certain remedial measures to review and evaluate its quality control policies and procedures to give it reasonable assurance that its personnel and other associated persons will comply with professional standards and regulatory requirements when the Firm uses audit work performed by other accounting firms. 

PCAOB enforcement staff members Noah A. Berlin, Ramón L. Torres, and David Eccard conducted the investigation, supervised by Kyra Armstrong.

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.

*****

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
[email protected]