PCAOB sanctions firm over auditor independence
August 29, 2023
The Public Company Accounting Oversight Board imposed sanctions for the first time ever against an accounting firm, Warren Averett LLC, over auditor independence violations because it's a member of an alliance where another firm, BDO USA, did valuation work for the same client.
The PCAOB imposed a $200,000 fine against the Birmingham, Alabama-based firm for both auditor independence and quality control violations and required the Top 50 Firm to review and certify its auditor independence policies.
The PCAOB found Warren Averett violated its independence requirements during its 2019 and 2020 audits of a company because it audited valuations performed for the same issuer by another accounting firm that sponsored an alliance of which Warren Averett was a member.
The PCAOB noted in its settled disciplinary order that Warren Averett is a member of the BDO Alliance USA, an association of accounting firms that's a wholly owned subsidiary of BDO USA. During fiscal year 2019, BDO performed purchase price allocation valuation services for a client, CytoDyn, for intangible assets acquired by the biotech company. During fiscal year 2020, BDO also did derivative valuation services for CytoDyn. Warren Averett audited the BDO valuation work as part of its 2019 and 2020 audits of CytoDyn.
The PCAOB said that given its alliance membership and association with the other accounting firm, Warren Averett had a disincentive to question the reasonableness of the other firm's valuation work, and both Warren Averett and the issuer shared a mutual interest in the reasonableness of the valuations.
"Independence violations put investors at risk by threatening the objectivity that's essential to a high-quality audit," said PCAOB chair Erica Williams in a statement Tuesday. "The PCAOB is committed to using every tool in our enforcement toolbox to protect investors."
Warren Averett said it would continue to provide high-quality audits. "Audit quality, integrity and compliance with professional standards are the cornerstones of Warren Averett's assurance practice," the firm said in a statement forwarded by a spokesperson. "Warren Averett is pleased to resolve this matter with the PCAOB and looks forward to continuing to perform high quality audits and to work with its regulators in the best interest of the investing public."
The PCAOB also found that Warren Averett violated the PCAOB's quality control standards because, while it was doing the 2019 and 2020 audits, it failed to implement and monitor adequate policies and procedures to reasonably ensure its auditors would comply with the PCAOB's independence requirements.
Without admitting or denying the findings, Warren Averett settled with the PCAOB and agreed to a disciplinary order censuring the firm, imposing a $200,000 penalty, and requiring it to review and certify its auditor independence policies and procedures.
"Registered firms must maintain robust quality control policies and procedures to make sure they consider all potential auditor independence issues and maintain their objectivity," said Robert Rice, director of the PCAOB's Division of Enforcement and Investigations, in a statement. "In this case, the firm failed to consider the independence implications of its membership in an accounting alliance, leading to independence violations in two issuer audits."