PCAOB Sanctions Audit Firm and Partner for Violating Audit Standards

The Public Company Accounting Oversight Board (PCAOB) has announced sanctions against Jack Shama and his firm for multiple and repeated violations of PCAOB rules and standards in connection with nine audits. The disciplinary order highlights failures in due professional care, professional skepticism, and obtaining sufficient audit evidence, leading to the permanent revocation of the firm's registration and a permanent bar for Shama.

The PCAOB's disciplinary order reveals a series of serious violations committed by Jack Shama and his firm during nine audits. The key findings include:

1. Lack of Due Professional Care and Skepticism: Shama and his firm failed to exercise due professional care and professional skepticism during the audits, compromising the quality and integrity of the audit process.
2. Insufficient Audit Evidence: The firm failed to obtain sufficient appropriate audit evidence to support its opinions on significant accounts and transactions, raising concerns about the reliability of the audit outcomes.
3. Audit Documentation Issues: Shama and his firm were found to have failed in properly assembling and retaining audit documentation, essential for ensuring transparency and accountability in the audit process.
4. Engagement Quality Review Violations: The firm violated PCAOB standards by neglecting to have an engagement quality review performed for any of the nine audits, indicating a lapse in the quality control process.

Quality Control Standards Breached

‍The PCAOB also identified breaches of quality control standards by Shama's firm. The firm failed to design and implement adequate policies and procedures to ensure:

1. Adherence to Professional Standards: Policies and procedures were lacking to provide reasonable assurance that work performed by engagement personnel met applicable professional standards and regulatory requirements.
2. Technical Training and Proficiency: Inadequate policies resulted in the failure to ensure that work was assigned to personnel with the required technical training and proficiency.
3. Reasonable Expectations for Engagements: The firm did not implement policies to only undertake engagements that it could reasonably expect to complete with professional competence.

PCAOB Chair Erica Y. Williams emphasized the necessity of taking action against auditors unwilling or unable to comply with core PCAOB standards across multiple audits. The PCAOB's Director of Enforcement and Investigations, Robert E. Rice, described the pervasive violations as unacceptable, justifying the imposed penalties of permanent registration revocation for the firm and a permanent bar for Shama.

Consent to PCAOB's Order

‍In a settlement, Shama and the firm consented to the PCAOB's order without admitting or denying the findings. The order includes censure for Shama and the firm, permanent revocation of the firm's registration, and a permanent bar preventing Shama from being associated with any registered public accounting firm.

The PCAOB's decisive action serves as a stark reminder of the critical role audit professionals play in maintaining the integrity of financial reporting and the severe consequences for those failing to meet established standards.

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