The Securities and Exchange Commission has charged London-based audit firm Crowe U.K., its CEO, and senior auditor for the firm’s deficient 2018 audit of music-streaming company Akazoo.
According to the SEC order, Crowe U.K. “issued a clean audit report of Akazoo’s 2018 financial statements,” but after Akazoo went public in September 2019 following its merger with a special purpose acquisition company (SPAC), “it was revealed that the company’s 2018 financial statements falsely claimed $120 million in revenue when Akazoo had only negligible amounts of revenue.”
Crowe U.K. claimed it conducted the 2018 audit in accordance with Public Company Accounting Oversight Board (PCAOB) standards. “[I]n fact, its Akazoo audit team had almost no experience or training in PCAOB standards,” the SEC said.
By violating PCAOB standards in relation to the 2018 Akazoo audit, Crowe U.K., CEO Nigel Bostock, and Matthew Stallabrass, in his capacity as senior auditor, “engaged in improper professional conduct,” the SEC said.
The SEC order also said the audit team failed to exercise “an appropriate level of due professional care or professional skepticism when Akazoo presented fabricated agreements and inauthentic confirmation letters to the audit team.” According to the SEC, “Crowe U.K. made false statements in its audit report when it claimed that Akazoo fairly presented its financial statements in all material respects for 2018.”
Additionally, the SEC order finds that Bostock, as the engagement partner for the Akazoo audit, “failed to appropriately supervise the engagement, maintain adequate documentation, and exercise due professional care. The SEC order also finds that Stallabrass, the engagement quality reviewer for the audit, failed to conduct a sufficient engagement quality review.
“Crowe U.K.’s failure to properly audit Akazoo contributed to the air of legitimacy that allowed Akazoo to become a publicly traded company,” said Eric Werner, regional director of the Fort Worth Regional Office. “We will continue holding gatekeepers accountable, especially those whose professional failings allow financial frauds to enter our public markets.”
Penalties
Without admitting or denying the SEC’s findings, Crowe U.K., Bostock, and Stallabrass agreed to settle the charges and pay penalties of $750,000, $25,000, and $10,000, respectively. They’ve also agreed to cease and desist from committing or causing violations of the proxy and reporting provisions of the Exchange Act and Regulation S-X.
Crowe U.K. will be censured, pay disgorgement and prejudgment interest (the payment of which is deemed satisfied by Crowe U.K.’s payments in related private litigation), voluntarily withdraw its PCAOB registration, and implement undertakings related to the firm’s acceptance of new clients, the SEC said.
Bostock and Stallabrass have been suspended from appearing or practicing before the SEC as accountants. They will be able to apply for reinstatement after five years and two years, respectively. 
Jaclyn Jaeger is a contributing editor at Compliance Chief 360° and a freelance business writer based in Manchester, New Hampshire.