PCAOB Imposes $2 Million in Fines on WithumSmith+Brown, PC for Quality Control Lapses in SPAC Audits

The Public Company Accounting Oversight Board (PCAOB) has issued a settled disciplinary order, imposing a $2 million civil money penalty on WithumSmith+Brown, PC for pervasive quality control violations related to special purpose acquisition company (SPAC) audits. The sanctions come in response to violations of PCAOB rules and quality control standards observed during the period from January 2020 through December 2021.

During this timeframe, WithumSmith+Brown, PC significantly expanded its issuer audit practice by accepting a substantial number of SPAC audit clients. The exponential growth, with a nearly 500% increase in the firm's issuer audit practice from around 80 audit reports to almost 450 in 2021, strained the firm's quality control system. Despite this surge in workload, the number of partners assigned to these audits increased by only 50%, from 15 to 23.

The PCAOB found that the firm's quality control system failed to provide reasonable assurance that its personnel complied with applicable professional standards and regulatory requirements, particularly concerning appropriately staffing issuer audits.

PCAOB Chair Erica Y. Williams emphasized the importance of maintaining quality control systems amid growth, stating, "Growth must not come at the expense of quality. The PCAOB will hold firms accountable for upholding quality control systems that protect investors."

The PCAOB identified several areas where the firm's quality control system fell short, including issues related to staffing, partner workloads, consultation procedures, testing estimates, communication with audit committees, critical audit matters, testing journal entries, and the timely and accurate filing of Form APs.

Robert E. Rice, Director of the PCAOB’s Division of Enforcement and Investigations, underscored the need for firms to have adequate staff and expertise to perform audits, stating, "Today’s order should serve as a stark reminder that firms must have both the staff and necessary expertise to perform the audits they agree to perform."

In response to the disciplinary order, WithumSmith+Brown, PC settled with the PCAOB without admitting or denying the findings. The firm has consented to the $2 million civil money penalty and is required to engage an independent consultant to review and make recommendations regarding the firm's quality control policies and procedures. Additionally, the firm is mandated to conduct specific training for all audit staff. The sanctions highlight the PCAOB's commitment to ensuring accountability for lapses in quality control that could impact the integrity of audit practices and investor protection.

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