PCAOB Sanctions Florida CPA Firm & Three Individuals for Quality Control Failures and Audit Violations

The Public Company Accounting Oversight Board (PCAOB) has issued a settled disciplinary order against L&L CPAs, PA, a Florida-based public accounting firm, its President, Weixuan Tracy Luo, and two other associated persons, Andy Chow and Robert Kinzer. The sanctions come in response to violations of PCAOB rules and standards related to quality control, auditing, and reporting.

Key Findings and Sanctions:

1. L&L CPAs, PA:
   • Failed to timely file Form APs for two issuer audits.
   • Failed to establish quality control policies ensuring compliance with PCAOB standards on identifying and disclosing critical audit matters (CAMs).
   • Censured and fined $75,000 jointly with Luo.
2. Weixuan Tracy Luo (President):
   • Directly and substantially contributed to L&L's quality control violations.
   • Censured and fined $75,000 jointly with L&L.
3. Andy Chow (Engagement Partner):
   • Failed to obtain sufficient audit evidence for the existence, valuation, and presentation of a purported "cannabis cultivation license" in the Sugarmade, Inc. audit.
   • Failed to accurately describe how a CAM was addressed in the audit report.
   • Censured, fined $50,000, and barred from association with a registered public accounting firm for at least one year.
4. Robert Kinzer (Engagement Quality Reviewer):
   • Failed to perform the engagement quality review with due professional care in the Sugarmade audit.
   • Failed to identify significant deficiencies in the engagement team's work.
   • Censured, fined $25,000, and banned from serving as an engagement quality reviewer for one year.

The order highlights several critical issues, including the importance of timely filing Form APs, which disclose who led specific audits and whether other firms were involved. It also underscores the significance of accurately identifying, addressing, and reporting CAMs, which are meant to inform investors about significant audit matters.

The case of the Sugarmade audit is particularly notable. The engagement team failed to verify the existence and valuation of a purported "cannabis cultivation license" that represented over 50% of the company's total assets. This highlights the risks associated with auditing emerging industries and the need for heightened professional skepticism.

"Critical audit matters are meant to inform investors and others about significant matters in the audit and how they were addressed," said PCAOB Chair Erica Y. Williams. "The PCAOB expects all firms to develop appropriate policies and procedures so that this important information is timely and accurately reported."

Both Chow and Kinzer are required to complete additional continuing professional education (CPE) before they can seek to reassociate with a registered public accounting firm or resume engagement quality review duties, respectively.

This case serves as a reminder to all public accounting firms about the importance of robust quality control systems, the need for due professional care in all aspects of auditing, and the critical role of accurate and timely reporting to maintain public trust in the financial markets.

The GRC Report is your premier destination for the latest in governance, risk, and compliance news. As your reliable source for comprehensive coverage, we ensure you stay informed and ready to navigate the dynamic landscape of GRC. Beyond being a news source, the GRC Report represents a thriving community of professionals who, like you, are dedicated to GRC excellence. Explore our insightful articles and breaking news, and actively participate in the conversation to enhance your GRC journey.