A registered audit firm was
censured by the PCAOB and its registration was revoked for at least two years
based on finding that it failed to comply with PCAOB quality control standards in the audits of
the financial statements of China-based companies. Without admitting or denying,
the findings the firm also consented to the imposition of a civil money
penalty. (In the Matter of Brock, Schechter & Polakoff, PCAOB Release No.105-2012-002, May 22, 2012)
The Board found that the
firm failed to develop policies and procedures sufficient to provide it with
reasonable assurance that the firm undertook only those public company audit
engagements that it reasonably could expect to complete with professional
competence. When it began auditing the financial statements of public companies
located in the Republic of China and the People's Republic of China , said the Board, the audit firm had no
prior experience auditing public companies pursuant to PCAOB auditing
standards, and had no prior experience auditing companies based in Taiwan or China
The Board also found that
the audit firm failed to develop quality control policies and procedures
sufficient to ensure that the audit personnel assigned to work on public
company audit engagements, including the auditor with final responsibility,
possessed the degree of technical training and proficiency required to fulfill
their engagement responsibilities. Moreover, the firm’s monitoring program,
which failed to select any of the audit firm’s public company audit engagements
for review, was insufficient to provide the firm with reasonable assurance that
its system of quality control was effective at assessing whether the firm's
audits were performed in compliance with applicable professional standards.
In addition, the audit firm
failed to comply with PCAOB auditing standards related to the planning,
performance, and supervision of the audits. The Board found that the audit firm
failed to gather sufficient competent evidential matter, and failed to use due
care and to exercise professional skepticism in the course of the audits. The
audits were planned and performed by two other audit firms, one located in Taiwan and one located in China
In a separate proceeding,
the Board barred the audit firm’s Director of Accounting and Auditing from the
industry for at least two years for violating PCAOB rules and auditing
standards in connection with the audits of three China-based and Taiwan-based
issuer clients, and the improper creation, addition, and backdating of audit
documentation prior to a Board inspection. The Director, who was the auditor
with final responsibility for the audits of the financial statements of each of
the issuers, settled the action without either admitting or denying the Board’s
findings. (In the Matter of James R. Waggoner, CPA, PCAOB Release No.105-2012-003, May 22, 2012)
The auditor failed to
comply with PCAOB auditing standards related to the planning, performance, and
supervision of the audits. The Board said that he also failed to gather
sufficient competent evidential matter, and failed to use due care and to
exercise professional skepticism in the course of the audits. In addition, the
auditor failed to comply with Auditing Standard No. 3 by failing to ensure that
the firm obtained and reviewed engagement completion documents from the foreign
firms prior to authorizing the firm to issue the audit reports.