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PCAOB hits audit partner with record $150K penalty

Oct. 19, 2022

Dive Brief:

The Public Company Accounting Oversight Board (PCAOB) imposed a $150,000 civil penalty against an audit partner at Spielman Koenigsberg & Parker — the largest penalty ever levied against an individual by the federal audit watchdog since it was established in 2002 — after he repeatedly misled the board’s investigators including by modifying about 80 audit work papers and submitting improperly altered documents to inspectors, the board announced Tuesday.

In addition to permanently barring the firm’s partner, Jonathan B. Taylor, from association with a registered public accounting firm, the PCAOB stated it also revoked SKP’s registration and censured the New York-based firm for failing to to establish adequate controls with respect to issuers’ audits, according the the release. SKP, which was also fined $150,000, can reapply for registration after five years.

The action comes as the PCAOB is doubling down on enforcements this year. “The Board will take action to protect investors from bad actors and impose consequences on those who put the integrity of our capital markets at risk,” PCAOB Chair Erica Y. Williams, said in a statement.

Dive Insight:

The record penalty is the latest sign that the PCAOB is stepping up its enforcement efforts. It comes on the heels of a board sanction of four audit firms in an enforcement “sweep” earlier this month. Strengthening enforcement is one of the four key goals outlined in the board’s 2022-2026 draft strategic plan.

The PCAOB asserts that Taylor improperly altered documents provided during a 2021 inspection and falsely told two inspectors that required “engagement quality reviews” of certain audits had been performed when he knew that was not the case. In another subsequent investigation Taylor again misled investigators, including by altering work papers and by giving false certifications around all relevant documents being provided, the board stated.

Taylor, a CPA since 1994, has been a partner at SKP for about 23 years, according to SKP’s website. He has served as the director of SKP’s Licensing & Royalty Department as well as the firm’s partner in charge of technical and quality review.

Separately, the board found that from 2018-2021 SKP failed to comply with the board’s quality control standards by not preventing or detecting Taylor’s improper alterations of work documents and by neglecting to get engagement quality reviews of issuer audits for multiple years. Taylor substantially contributed to the firm’s violations, the board stated.

Audit firm quality control systems are “fundamental to audit quality,” and registered firms must establish policies and procedures to foster compliance with regulatory requirements, Mark A. Adler, acting director of the PCAOB’s Division of Enforcement and Investigation, said in a statement.

As part of its intensified enforcement initiative, the PCAOB said it has increased average penalties, enforced some rules for the first time and increased the staging of sweeps of auditors that may have violated standards.

Taylor and SKP did not immediately respond to requests for comment.

[CFO Dive]