PCAOB Sanctions Somerset CPAs, P.C. and Three of Its Partners for Violations of PCAOB Rules and Audit Standards
The PCAOB imposes $230,000 in fines, among other sanctions
The Public Company Accounting Oversight Board (PCAOB) today announced a settled disciplinary order sanctioning Somerset CPAs, P.C. (“Somerset” or the “Firm”) and partners Douglas Fahrnow, Rebecca Quintana, and Edward McGuire (collectively, “Respondents”). As described in the order, the individual Respondents failed to comply with PCAOB rules and audit standards while serving as either the engagement partner or engagement quality review partner on four audits of three issuers, while Somerset failed to comply with PCAOB rules and quality control standards.
“A firm’s system of quality control provides the foundation for properly performed audits,” said PCAOB Chair Erica Y. Williams. “Firms will be held accountable for quality control deficiencies – especially when there are repeated failures by firm personnel across multiple audits.”
The Board sanctioned Somerset for failing to maintain a system of quality control sufficient to give the Firm reasonable assurance that its engagement teams performed issuer audits and reviews in accordance with applicable professional standards, regulatory requirements, and PCAOB auditing standards.
The PCAOB further found the following:
- Fahrnow, while serving as engagement partner on the Firm’s audits of Noble Roman’s Inc. (“Noble Roman”) for the years ended December 31, 2019, and December 31, 2020, failed to perform sufficient procedures to evaluate whether the amounts recorded by Noble Roman as revenue based on terminated contracts were in conformity with generally accepted accounting principles and failed to perform sufficient procedures to test accounts receivable.
- Quintana failed to perform sufficient procedures to test goodwill impairment while serving as the engagement partner on the Firm’s audits of Galaxy Next Generation, Inc. (“Galaxy”) for the year ended June 30, 2020, and of Ameritrust Corp. (“Ameritrust”) for the year ended September 30, 2020.
- McGuire failed to exercise due care and professional skepticism while performing his engagement quality reviews of the Noble Roman audits, and Fahrnow similarly failed to exercise due care with respect to his engagement quality reviews of the Galaxy and Ameritrust audits. As a result, both lacked an appropriate basis to provide their concurring approval of issuance of the Firm’s audit reports.
- McGuire failed to maintain his objectivity as engagement quality reviewer of the Noble Roman audits by preparing substantive audit work papers on behalf of the engagement teams.
Without admitting or denying the Board’s findings, the Respondents consented to the PCAOB’s order, which censured the Respondents and imposed civil money penalties of $100,000 on the Firm, $60,000 on Fahrnow, $40,000 on Quintana, and $30,000 on McGuire. The order also bars the three individuals from being associated persons of a registered public accounting firm, with the option for Fahrnow and Quintana to file for Board consent to associate after two years and McGuire after one year.
“Audit procedures must be designed and performed to obtain sufficient audit evidence to comport with our standards,” said Robert E. Rice, Director of the PCAOB’s Division of Enforcement and Investigations, “Auditors who fail to perform sufficient audit procedures will face enforcement proceedings.”
PCAOB enforcement staff members Michael C. Occhuizzo, Tony Chen, and Kristina Shin conducted the investigation, supervised by Kyra C. 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.
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