PCAOB Imposes Sanctions on Five Audit Firms for Violating Communications Rules with Audit Committees

The Public Company Accounting Oversight Board (PCAOB) has taken action against five audit firms for breaching PCAOB rules and standards pertaining to their communications with audit committees. The sanctions were part of a comprehensive sweep, which enabled the PCAOB to assess potential violations simultaneously across multiple firms. The move underscores the PCAOB's commitment to strengthening enforcement and ensuring accountability within the auditing profession.

Audit committees play a crucial role in safeguarding investors' interests, and the PCAOB aims to hold firms accountable for their role in ensuring these committees receive appropriate and timely information. Upholding independence is paramount, and this includes obtaining pre-approval from audit committees for services rendered to issuer audit clients. Required disclosures are equally vital, as they empower audit committees to effectively oversee the auditor's work.

The firms that faced sanctions for failing to obtain audit committee pre-approval and violating PCAOB rules are as follows:

1. BPM LLP – The firm incurred a $50,000 civil money penalty and censure.
2. Plante & Moran, PLLC – A $40,000 civil money penalty and censure were imposed.
3. S. R. Snodgrass, P.C. – The firm received a $35,000 civil money penalty and censure.

Additionally, two firms were reprimanded for their failure to make or document specific communications with audit committees concerning the planned involvement of other firms and auditors in the audit, in accordance with AS 1301, Communications with Audit Committees. The firms facing penalties for these violations are:

1. Mancera, S.C. – The firm faced a $40,000 civil money penalty and censure.
2. MSPC, Certified Public Accountants and Advisors, A Professional Corporation – A $30,000 civil money penalty and censure were imposed on this firm.

It is crucial to note that each firm consented to the PCAOB's order and disciplinary action without admitting or denying the findings. Additionally, they have agreed to undertake remedial measures, including revising policies and procedures to ensure compliance with PCAOB rules and standards relating to these violations.

Robert E. Rice, Director of the PCAOB's Division of Enforcement and Investigations, emphasized the significance of the required audit committee communications and underscored the PCAOB's determination to enforce actions against firms that neglect these obligations.

The PCAOB, as part of its mandate, oversees auditors' adherence to the Sarbanes-Oxley Act, securities laws related to auditing, professional standards, and PCAOB and SEC regulations. Strengthening enforcement is a key strategic goal for the PCAOB, and these recent sanctions demonstrate their commitment to upholding the highest standards of audit quality.

Lessons for Internal Auditors

The PCAOB's actions and sanctions against these audit firms serve as valuable lessons for internal auditors. It highlights the critical importance of compliance with audit committee communications rules and standards. To ensure best practices and uphold independence, internal auditors should:

1. Obtain Pre-Approval: Prior to providing audit or non-audit services to issuer audit clients, internal auditors must secure pre-approval from the audit committees. This step reinforces transparency and helps mitigate potential conflicts of interest.
2. Fulfill Communication Requirements: Internal auditors must diligently make and document all required communications with audit committees concerning the planned involvement of other firms and auditors in the audit. This ensures effective oversight and accountability throughout the auditing process.
3. Prioritize Compliance: Internal audit teams must prioritize compliance with PCAOB rules and standards. Implementing and adhering to comprehensive policies and procedures will help internal auditors avoid potential violations and sanctions.
4. Undertake Remedial Actions: In case of any compliance lapses, internal auditors should take immediate remedial actions to establish, improve, or comply with revised policies and procedures. Rectifying any identified issues demonstrates a commitment to upholding the highest standards of audit integrity.

As the PCAOB continues to strengthen its enforcement efforts, internal audit teams should proactively assess their practices and communication protocols to ensure alignment with regulatory requirements. By upholding the highest standards of compliance and transparency, internal auditors can bolster trust and confidence in the auditing profession and protect the interests of investors and stakeholders.