PCAOB Sanctions Audit Firm for Deficient Audits of SPACs

The Public Company Accounting Oversight Board ("PCAOB") sanctioned an audit firm for quality control failures after it accepted a substantial number of new SPACs as audit clients. PCAOB found that the firm’s system of quality control failed to provide reasonable assurance that the firm would "undertake only those issuer engagements that the firm could reasonably expect to be completed with professional competence..."

According to the Order, the firm accepted hundreds of SPACs as audit clients and had a 486% increase in issuer audit reports as compared to the previous year. Despite this increase, the percentage of engagement partners at the firm increased by only 53%.

The PCAOB found that the firm's system of quality control failed to provide reasonable assurance (i) with respect to acceptance of issuer clients and partner workload, (ii) that personnel would consult with others when dealing with complex issues, (iii) with respect to testing estimates, (iv) with respect to audit committee communications, (v) with respect to determining critical audit matters, (vi) with respect to journal entry testing and (vii) with respect to auditor reporting of certain audit participants.

The PCAOB found that the firm violated Quality Control ("QC") Section 20, ("System of Quality Control for a CPA Firm's Accounting and Auditing Practice").

To settle the charges, the firm agreed to (i) a censure, (ii) pay a civil money penalty of $2 million and (iii) undertake remedial measures outlined in the Order.