The Public Company Accounting Oversight Board censured and levied $165,000 in fines against six auditing firms for failing to disclose information about whether the firms or their employees had been involved in any criminal or disciplinary proceedings, as the PCAOB faced pushback Thursday from a key constituency on a newly proposed standard involving audit confirmations.
The PCAOB announced settled disciplinary orders Thursday sanctioning six audit firms for failing to file — or to report within the required timeframe — the board's Form 3, which discloses whether a firm or its personnel have been the subject of certain criminal or disciplinary proceedings. The firms included three U.S. firms, Grant Thornton, MaloneBailey and KCCW Accountancy Corp., along with three firms abroad, including a Grant Thornton firm in Brazil.
"Grant Thornton has implemented enhanced policies and processes to ensure the firm meets all reporting requirements," said a statement from Grant Thornton LLP emailed to Accounting Today. "Quality is the foundation of all we do and will continue to be our principal focus. We appreciate the Public Company Accounting Oversight Board's commitment to this shared goal."
MaloneBailey and KCCW did not immediately respond to requests for comment, and the others couldn't be reached.
For five of the six firms, PCAOB staff identified the Form 3 violations as a result of a sweep designed to uncover potential failures to comply with board reporting requirements. As part of its effort to strengthen enforcement, the board has increased the use of sweeps against firms where there may be a violation of standards or rules.
"Timely special reporting on Form 3 provides information that is important to investors and to the board's oversight of registered firms," said PCAOB acting director of enforcement and investigations Mark Adler in a statement.
The firms, without admitting or denying the findings, agreed to the PCAOB's orders and the disciplinary actions. The sanctions were for these amounts:
Grant Thornton LLP — $40,000 civil money penalty and censure;KPMG Samjong Accounting Corp. — $30,000 civil money penalty and censure;BDO RCS Auditores Independentes — $30,000 civil money penalty and censure;MaloneBailey LLP — $25,000 civil money penalty and censure;Grant Thornton Auditores Independentes Ltda. — $20,000 civil money penalty and censure; and,KCCW Accountancy Corp. — $20,000 civil money penalty and censure.
The PCAOB required each firm to improve or to comply with their already revised policies and procedures concerning reporting requirements.
Pushback on a proposal
Separately on Thursday, the Institute of Internal Auditors expressed serious concerns about an internal auditor provision in the PCAOB's recently
The IIA contended that the proposed standard would unfairly put internal auditors at the center of an effort to regulate issues within CPA firms. The proposal aims to address those issues by prohibiting external auditors from working with internal auditors to provide direct assistance in the confirmation process, but the IIA said that solution fails to recognize that both internal and external auditors report directly to the same governing body — the audit committee on the board of directors.
The IIA said it was particularly concerned with the potential misinterpretation and implication of internal audit wrongdoing in Section III(I) of the proposed standard, which says, "Involving internal auditors or other company employees in [the confirmation process] would create a risk that information exchanged between the auditor and the confirming party is intercepted and altered."
"I am deeply concerned by the potential precedent the PCAOB's proposed standard may set regarding the work of internal auditors," said IIA president and CEO Anthony Pugliese in a statement. "The internal audit profession is grounded in providing audit committees with objective assurance, independent from management, in accordance with internationally recognized internal auditing standards. The PCAOB's proposed standard could have the unintended consequence of implying that internal auditors would intentionally 'intercept' and 'alter' information. Like external auditors, internal auditors have an obligation to exercise due care in the handling of all information."
The IIA noted that internal auditors are responsible for providing audit committees with objective assurance, independent from management, on matters related to risk management, internal controls, and corporate governance, in accordance with the International Standards for the Professional Practice of Internal Auditing. But because internal auditors and external auditors have the same independent reporting relationship to the audit committee, it's common for external auditors to rely on work performed by internal auditors and/or for internal auditors to directly help external auditors perform certain duties.
The IIA plans to submit a formal comment to the PCAOB in the weeks ahead and hopes to work constructively with the board to address its concerns and come up with an acceptable solution to strengthen standards. The audit confirmation proposal is the first substantial update to PCAOB confirmation standards in about 20 years.
