On September 24, the Public Company Accounting Oversight Board announced settled disciplinary proceedings against four audit firms for violating the Board’s rules related to communications with audit committees. Two of the cases also allege failures to document audit committee pre-approval of tax services. These cases are part of a continuing PCAOB crackdown on firms that fail to make required communications to client audit committees.
The four firms, the sanctions to which they consented, and the nature of the violations are:
Accell Audit & Compliance, P.A. – $40,000 civil money penalty, censure, and undertaking to implement certain remedial actions. The PCAOB’s order alleges that Accell failed to communicate to a client’s audit committee (1) the name, location, and planned responsibilities of another firm that participated in the audit and (2) material ICFR weaknesses identified during the audit. At another client, Accell failed to communicate to the audit committee (1) a significant audit risk, (2) a corrected misstatement identified by the engagement team, and (3) certain information concerning the company’s ability to continue as a going concern.
Crowe MacKay LLP (Canada) – $30,000 civil money penalty, censure, and an order requiring compliance with firm policies and procedures relating to communications with audit committees and the documentation of those communications. The PCAOB’s order alleges that Crowe MacKay failed to document in its work papers audit committee pre-approval of certain tax return preparation services and services in connection with Crowe MacKay’s consent to use of a prior audit report in an SEC registration statement. Crowe MacKay also failed to describe in writing to the audit committee the scope and fee structure of the tax return preparation services or to document the substance of discussion with the audit committee concerning the potential effects of the tax services on the firm’s independence. At another client, Crowe MacKay failed to document audit committee pre-approval of the performance of the audit.
Ernst & Young AG (Switzerland) – $45,000 civil money penalty, censure, and an order requiring compliance with firm policies and procedures relating to communications with audit committees. The PCAOB’s order alleges that EY-Switzerland failed to inform a client’s audit committee of the name, location, and planned responsibilities of 15 other firms that participated in the audit.
Grant Thornton LLP (Canada) – $30,000 civil money penalty, censure, and an order requiring compliance with firm policies and procedures relating to communications with audit committees and the documentation of those communications. The PCAOB’s order alleges that GT-Canada failed to document in its work papers audit committee pre-approval of tax return preparation services provided to a company subsidiary by another Grant Thornton International member firm. GT-Canada also failed to describe in writing to the audit committee the scope and fee structure of the tax return preparation services or to document the substance of discussion with the audit committee concerning the potential effects of the tax services on the firm’s independence.
This is the third set of firms the PCAOB has charged with failing to comply with the audit committee communications requirements. In February, the Board settled similar charges against four other firms. See PCAOB Charges Four More Firms with Audit Committee Communications Violations, February 2024 Update. In July 2023, the Board brought audit committee communications cases against five more firms. See PCAOB Charges Five Firms with Audit Committee Communications Failures, August-September 2023 Update. As explained in the February 2024 Update, these actions arise from a PCAOB “enforcement sweep” focused on noncompliance with the audit committee communications rules.
Audit Committee Takeaways
The auditor’s failure to comply with the communications requirements can deprive the audit committee of important information, such as significant audit risks affecting key financial statement accounts or the conditions and events that the auditor viewed as indicators that there is substantial doubt concerning the company’s ability to continue as a going concern. Audit committees should have a general understanding of the types of information their auditor is required to communicate and should ask questions if they do not receive the required communications.
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