PCAOB Imposes Sanctions on BDO USA, P.C. and Partners for Audit Violations

The Public Company Accounting Oversight Board (PCAOB) has taken action against BDO USA, P.C. ("BDO"), as well as its partners Kevin Olvera and Michael Musick, in a disciplinary order that sanctions the firm and individuals for violations of PCAOB rules and audit standards related to the 2017 audit of AAC Holdings, Inc. ("AAC").

The PCAOB's investigation revealed significant shortcomings in BDO's audit procedures. BDO and Olvera, who served as a partner during the audit, were found to have failed in adequately evaluating three crucial estimates used by AAC to value a substantial portion of its client-related revenue and accounts receivable. Additionally, the PCAOB determined that Musick, another BDO partner, did not exercise due professional care when conducting an engagement quality review of the audit. He accepted the engagement team's judgments regarding the assessment of the significant estimates without identifying the deficiencies in the audit work.

The PCAOB's findings indicate that these failures persisted even though BDO, Olvera, and Musick were aware of red flags that cast doubt on the reasonableness of the estimates. Notably, PCAOB inspectors had previously identified deficiencies in the procedures employed to test one of the same estimates during BDO's audit of AAC for the year 2015. However, the audit procedures conducted during BDO's 2017 audit of AAC failed to sufficiently address these previously highlighted issues.

Robert E. Rice, Director of the PCAOB's Division of Enforcement and Investigations, commented on the matter, stating, "PCAOB standards call for auditors to evaluate and respond appropriately to the significant risks they encounter during an audit. The Respondents here repeatedly failed to meet these and other obligations, to the detriment of the investing public."

Sanctions Imposed

In response to these findings, BDO, Olvera, and Musick have consented to the PCAOB's order, neither admitting nor denying the Board's conclusions. The sanctions imposed are as follows:

• BDO has been censured, and a civil money penalty of $2,000,000 has been imposed.
• Olvera, also censured, faces a $35,000 civil money penalty, restrictions on certain roles in audits for one year, and a requirement to complete additional continuing professional education.
• Musick, likewise censured, is subject to a civil money penalty of $25,000 and must complete additional continuing professional education.

These sanctions reflect the PCAOB's commitment to upholding audit standards and ensuring that auditors meet their obligations for the benefit of investors and the public.