The Public Company Accounting Oversight Board levied sanctions and $150,000 in penalties Monday against L&L CPAs and three of its auditors for violating its rules and standards.
The sanctions related to violations involving insufficient quality control policies and procedures related to reporting critical audit matters, and failing to file the Form AP for reporting who led specific audits and whether other firms were involved in the audits.
The PCAOB order sanctions L&L, based in Plantation, Florida, as well as its president, Weixuan Tracy Luo, for contributing to L&L's quality control violations, and engagement partner Andy Chow and engagement quality reviewer Robert Kinzer for violating board rules and standards on the audit of the financial statements of Sugarmade Inc. for the fiscal year ended June 30, 2021.
The PCAOB said L&L failed to establish quality control policies and procedures to provide reasonable assurance that its personnel would comply with board requirements for identifying and communicating critical audit matters, and Luo contributed to its quality control violations. The firm also failed to timely file the Form AP for two of its audits.
In one audit involving Sugarmade, which is involved in products for the restaurant industry, and non-medical personal protection equipment, as well as cannabis and hemp products, Chow failed to obtain sufficient appropriate audit evidence to support the existence, valuation, presentation, and disclosure of a purported intangible asset that represented over 50% of the company's total assets, and failed to accurately describe in the audit report how the engagement team addressed a critical audit matter. Kinzer failed to perform his engagement quality review of the Sugarmade audit with due professional care and in accordance with PCAOB standards.
The firm's attorneys did not immediately respond to requests for comment, nor did Luo or Kinzer. Chow's email address at the firm produced an error message.
"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 Williams in a statement. "The PCAOB expects all firms to develop appropriate policies and procedures so that this important information is timely and accurately reported."
Without admitting or denying the PCAOB's findings, L&L, Luo, Chow and Kinzer settled with the PCAOB and consented to the disciplinary order and sanctions. L&L and Luo were censured and agreed to pay a $75,000 penalty, jointly and severally. Chow was censured, agreed to pay a $50,000 penalty, and was barred from being an associated person of a registered public accounting firm, with a right to seek board consent to terminate the bar after one year and with a requirement to complete 50 hours of continuing professional education before seeking consent. Kinzer was censured and agreed to a $25,000 penalty. Limitations were also put on his activities for one year, with a requirement to complete 50 hours of CPE.
"Firms must have quality control systems in place to ensure compliance with PCAOB rules and standards, and firm personnel must conduct audits with due professional care and professional skepticism, particularly when auditing high-risk accounts and evaluating potential CAMs," said Robert Rice, the board's director of enforcement and investigations, in a statement. "This case is another example of the PCAOB holding firms and auditors accountable for violations of core rules and standards."
