PCAOB Sanctions Warren Averett, LLC for Auditor Independence and Quality Control Violations
In first-ever sanctions related to a firm’s membership in an accounting alliance, PCAOB imposes $200,000 fine, requires firm to review and certify its auditor independence policies
The Public Company Accounting Oversight Board (PCAOB) today announced a settled disciplinary order sanctioning Warren Averett, LLC (“Warren Averett”) for auditor independence violations during two issuer audits.
Under auditor independence rules, an auditor is not independent if a reasonable investor with knowledge of all relevant facts and circumstances would conclude that the auditor is not capable of exercising objective and impartial judgement, such as where the auditor and audit client share a mutual interest.
The PCAOB found that Warren Averett violated independence requirements during its 2019 and 2020 audits of an issuer, because the firm audited valuations performed for the issuer by another accounting firm that sponsored an alliance of which Warren Averett was a member. Given its alliance membership and association with the other accounting firm, Warren Averett had a disincentive to question the reasonableness of the other accounting firm’s valuation work. Thus, both Warren Averett and the issuer shared a mutual interest in the reasonableness of the valuations.
“Independence violations put investors at risk by threatening the objectivity that’s essential to a high-quality audit,” said PCAOB Chair Erica Y. Williams. “The PCAOB is committed to using every tool in our enforcement toolbox to protect investors.”
The PCAOB also found that Warren Averett violated PCAOB quality control standards because, during the time it was conducting the 2019 and 2020 audits, the firm failed to implement and monitor adequate policies and procedures to reasonably ensure that its personnel would comply with applicable auditor independence requirements.
Without admitting or denying the findings, Warren Averett settled with the PCAOB and consented to a disciplinary order that censures the firm, imposes a $200,000 civil money penalty, and requires the firm to review and certify its auditor independence policies and procedures.
“Registered firms must maintain robust quality control policies and procedures to make sure they consider all potential auditor independence issues and maintain their objectivity,” said Robert E. Rice, Director of the PCAOB’s Division of Enforcement and Investigations. “In this case, the firm failed to consider the independence implications of its membership in an accounting alliance, leading to independence violations in two issuer audits.”
PCAOB enforcement staff members Samuel C. McCoubrey, Tony Chen, and Thomas Barry conducted the investigation. C. Ian Anderson 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.
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