Tag: PCAOB standards
SEC approves new PCAOB proposals
Yesterday, the SEC held an open meeting to consider a number of PCAOB proposals addressing the “general responsibilities of an auditor conducting an audit as well as technology-assisted analysis and contributory liability rule for associated persons.” In his opening remarks, SEC Chair Gary Gensler put this initiative in the historic context of the adoption of SOX in 2002, which led to the establishment of the PCAOB as “an independent watchdog over the audits of public companies and registered broker-dealers and their auditors. The Enron crisis revealed a key problem: the quality of auditing standards. Candidly, the relationships between issuers and auditors, between standard-setters and auditing firms, were too clubby.” Auditing standards were set by the AICPA, which meant that, in effect, the “profession was writing its own rules. That’s an inherent conflict. To correct course, the PCAOB was tasked with setting enhanced auditing standards. For practical purposes, Congress permitted the newly established PCAOB to carry over existing AICPA standards on an interim basis. The expectation was that the Board would produce a more appropriate set of standards going forward.” Although these standards “were already decades-old when the Board adopted them in 2003,” before now, the PCAOB had adopted only seven new standards—“42 of these 49 so-called ‘interim standards’ remained in public company audit practice.” Yesterday, the SEC approved a proposed rule amendment and two proposals for new and updated audit standards adopted by the PCAOB: an amendment to PCAOB Rule 3502 governing contributory liability (approved three to two); AS 1000, regarding the general responsibilities of the auditor in conducting an audit (approved unanimously), and AS 1105 and AS 2301, amendments related to aspects of designing and performing audit procedures that involve technology-assisted analysis of information in electronic form (approved unanimously). According to the press release, Gensler said that he was “pleased that the PCAOB is fulfilling its obligations under the Sarbanes-Oxley Act by updating its standards and rules regarding the practice of auditing….I’m proud to support the PCAOB’s proposed changes to instill greater trust among investors and issuers in our markets.”
Auditor problems are not just auditor problems
On Friday, SEC Enforcement charged audit firm BF Borgers CPA PC and its owner, Benjamin F. Borgers, with “massive fraud” involving “deliberate and systemic failures” to comply with PCAOB standards in auditing and reviewing financial statements incorporated into more than 1,500 SEC filings from January 2021 through June 2023. The charges also included “falsely representing to their clients that the firm’s work would comply with PCAOB standards; fabricating audit documentation to make it appear that the firm’s work did comply with PCAOB standards; and falsely stating in audit reports included in more than 500 public company SEC filings that the firm’s audits complied with PCAOB standards.” In settlement, the audit firm agreed to pay a $12 million civil penalty, and Benjamin Borgers agreed to pay a $2 million civil penalty, along with censures, cease-and-desists and permanent suspensions from appearing and practicing before the SEC as accountants. According to SEC Enforcement Director Gurbir S. Grewal,
“Ben Borgers and his audit firm, BF Borgers, were responsible for one of the largest wholesale failures by gatekeepers in our financial markets….As a result of their fraudulent conduct, they not only put investors and markets at risk by causing public companies to incorporate noncompliant audits and reviews into more than 1,500 filings with the Commission, but also undermined trust and confidence in our markets. Because investors rely on the audited financial statements of public companies when making their investment decisions, the accountants and accounting firms that audit those statements play a critical role in our financial markets. Borgers and his firm completely abandoned that role, but thanks to the painstaking work of the SEC staff, Borgers and his sham audit mill have been permanently shut down.”
This case has received an unusual amount of press—for an audit firm that many have never even heard of before—because Borgers was the auditor for the social media company of a certain former president. (See, e.g., the NYT, CNBC, CBS News) But, as we’ve often seen in other contexts, such as auditor independence (see, e.g., this PubCo post), this case also illustrates the importance for companies to keep in mind that these types of violations may have serious consequences not only for the audit firm, but also for the audit clients. In fact, in this case, the staff of Corp Fin and the Office of Chief Accountant issued this Staff Statement on Issuer Disclosure and Reporting Obligations in Light of Rule 102(e) Order against BF Borgers CPA PC.
You must be logged in to post a comment.