PCAOB Sanctions Three Individuals for Violating PCAOB Standards on Relationships Between a Company and Its Related Parties

PCAOB bars and fines parties $95,000 in total

Washington, DC, Dec. 20, 2022

The Public Company Accounting Oversight Board (PCAOB) today announced a settled disciplinary order sanctioning Scott Reams, CPA, Brandon Keyes, CPA, and James Budge, CPA for violations of PCAOB rules and standards that address auditors’ evaluation of a company’s identification of, accounting for, and disclosure of transactions and relationships between a company and its related parties. The violations were in connection with the audits and reviews of Freedom Holding Corp. (“Freedom”). At the time of the audits and reviews, all three individuals were partners of WSRP, LLC. 

“Under PCAOB standards, auditors must understand the nature and business purpose of related party transactions to ensure that investors get the information they need to make informed decisions,” said Mark A. Adler, PCAOB Acting Director of Enforcement and Investigations. “Because related party transactions and relationships have been contributing factors in financial reporting fraud, this requirement must be taken seriously by audit firms.” 

The PCAOB found that the engagement partners, Reams and Keyes, and engagement quality reviewer, Budge, failed to adhere to PCAOB standards during two audits. The PCAOB found that Reams and Keyes, who identified and knew that there were risks of material misstatement with respect to revenues and margin loans receivable related to transactions with a related party, failed to adequately respond to risks of material misstatement. Reams and Keyes failed to: 

  • Comply with PCAOB auditing standards when evaluating Freedom’s identification of and accounting for the relationship and transactions between Freedom and a related party; 

  • Identify that Freedom’s 2019 and 2020 financial statements did not contain necessary disclosures regarding a related party and its relationship with Freedom and its CEO;  

  • Gather sufficient appropriate audit evidence to evaluate Freedom’s reported margin loans to a related party;  

  • Gather sufficient appropriate audit evidence to evaluate commission revenue from securities transactions processed by Freedom on behalf of a related party; and  

  • Evaluate whether a related party was a variable interest entity that, potentially, may have needed to be consolidated with Freedom.  

In addition, Budge failed to exercise due professional care in performing his engagement quality review.  

Without admitting or denying the findings, the parties settled with the PCAOB and consented to a disciplinary order. The order bars Reams and Keyes from being associated persons of a registered firm, with a right to apply for reassociation after two years. It also imposes a $35,000 civil money penalty each on Reams and Keyes. The order also bars Budge from being an associated person of a registered firm, with a right to apply for reassociation after one year. It also imposes a $25,000 civil money penalty on Budge.  

PCAOB enforcement staff members Stefan Hagerup, Jerry Folk, Judy Fish, and Tiffany Johnson conducted the investigation. Kyra Armstrong and Raymond Hamm 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


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. 


PCAOB Office of Communications and Engagement 
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