PCAOB fines Deloitte's Colombia firm $900K for violations

The Public Company Accounting Oversight Board has imposed a $900,000 fine on a Deloitte member firm in the South American country of Colombia for violating quality control standards.

In a settled disciplinary order posted Wednesday, the PCAOB sanctioned Deloitte & Touche S.A.S., or DT Colombia, for violating PCAOB rules and standards during a 2016 audit of Bancolombia, a financial institution based in Medellín. The PCAOB found the firm's quality control failed to provide it with reasonable assurance that audit work would be performed and documented in accordance with PCAOB standards. Multiple people at the firm performed audit procedures, collected audit evidence, and substantially changed audit documentation after issuance of a 2016 audit report, but the firm's quality control system didn't prevent or detect these violations. 

The PCAOB also found DT Colombia's system of quality control didn't give the firm reasonable assurance its personnel would maintain independence in either fact or appearance under all circumstances. For example, it once used impermissible indemnification language within an engagement letter, and in two cases failed to remove personnel with known financial conflicts from an audit engagement in a timely way. DT Colombia did not immediately respond to a request for comment.

"Firms must establish and implement effective systems of quality control to support compliance with all relevant auditing and independence requirements," said Robert E. Rice, director of the PCAOB's Division of Enforcement and Investigations, in a statement Wednesday. "As today's order shows, when firms fail to do so, we will not hesitate to take action."

Without admitting or denying the PCAOB's findings, DT Colombia agreed to the PCAOB's order, which censured it and imposed a $900,000 penalty. The order also required DT Colombia to take some remedial measures to establish, revise or supplement its quality control policies and procedures to give it reasonable assurance that its staff and associates would comply with PCAOB standards and maintain independence under all required circumstances. DT Colombia's audit staff also now need to take 20 hours of training related to U.S. GAAP, PCAOB rules and standards, and Securities and Exchange Commission reporting requirements, rules and regulations.

The PCAOB has been ramping up its enforcement activity against auditing firms in the U.S. and abroad in recent years under its mostly new set of board members. On Tuesday, it announced a $2 million fine against BDO USA for audit violations (see story). In February, Cornerstone Research reported that the PCAOB disclosed 29 disciplinary actions involving the performance of an audit and/or a firm's system of quality control in 2022, up 61% from 2021 and the most since 2017 (see story). Monetary penalties in 2022 totaled close to $10.5 million, nearly 10 times more than in 2021.