In settlements announced Oct. 18, the PCAOB imposed civil money penalties of $150,000 each against audit partner, Jonathan Taylor, and New York-based accounting firm Spielman Koenigsberg & Parker (SKP), where Taylor was a partner.
Additionally, the PCAOB has censured and permanently barred Taylor from association with a registered public accounting firm and further revoked SKP’s PCAOB registration and censured the firm “for failing to establish and implement adequate quality control policies and procedures with respect to audits of issuers.”
The PCAOB said SKP can reapply for registration after five years if the firm “adopts policies and conducts training related to audits of issuers before filing any future registration application.”
Audit Misconduct
In anticipation of a PCAOB inspection in 2021, “Taylor coordinated a months-long effort involving other SKP professionals to alter and backdate audit work papers and then made those work papers available to the inspectors,” the PCAOB said in its order. Taylor then “made false statements to the inspectors about whether those work papers had been improperly altered, even after they pointed out modification dates appearing in the firm’s audit software that suggested the contrary.”
Specifically, Taylor and other SKP professionals backdated multiple work papers for 2019 audits. Approximately 80 of 145 work papers beared false signoffs, the PCAOB said. In a subsequent PCAOB investigation regarding the alleged conduct, Taylor repeatedly provided investigators with false and misleading information.
“Taylor misled investigators regarding whether engagement quality reviews (EQRs) were performed, when and what kinds of alterations were made to work papers, and whether SKP had certain documents in its possession,” the PCAOB said in its order. “Taylor also represented that his productions on SKP’s behalf in response to document demands from the investigators were complete—while withholding thousands of responsive documents, including documents that evidenced Taylor’s misconduct.”
Quality Control Failures
According to the PCAOB, the only issuer clients SKP has ever audited were a pair of contribution plans covering certain salaried and hourly employees of clothing company PVH. “Having decided to perform audits of issuers, however, SKP was obligated to design and implement policies and procedures, including monitoring procedures, to provide reasonable assurance of compliance with regulatory requirements applicable to issuer audits,” the PCAOB said in its order against the firm. “SKP failed to do so.”
SKP’s quality control policies and procedures from 2018 to 2021 “were not suitably designed and effectively applied to provide reasonable assurance that the work performed by its engagement personnel met PCAOB audit documentation requirements,” the PCAOB said in its order against SKP.
“For example, SKP’s quality control policies and procedures did not address whether or how its engagement personnel could add, modify, or delete audit documentation following the documentation completion date” or “the need to retain records relevant to the audit for a seven-year period after conclusion of an issuer audit.”
The PCAOB said SKP also failed to design or implement other policies and procedures to prevent or detect improper alterations of audit documentation after the documentation completion date. “These quality control failures increased the risk that work papers might be improperly altered after the documentation completion date,” the PCAOB said.
Compliance Message
The PCAOB’s action comes at a time when the Board has warned it is enhancing its enforcement approach, including by increasing average penalties, pursuing first-of-their-kind enforcement actions, and taking steps to proactively seek out wrongdoing by increasing the use of enforcement sweeps against firms where a violation of PCAOB standards or rules may have occurred.
“The Board will take action to protect investors from bad actors and impose consequences on those who put the integrity of our capital markets at risk,” said PCAOB Chair Erica Williams.
“The quality control systems at audit firms are fundamental to audit quality and regulatory compliance,” said Mark Adler, PCAOB Acting Director of the Division of Enforcement and Investigation. “Registered firms must take care to establish and implement policies and procedures directed to meaningful monitoring and robust compliance with regulatory requirements.” 
Jaclyn Jaeger is a contributing editor at Compliance Chief 360° and a freelance business writer based in Manchester, New Hampshire.