PCAOB Penalizes Deloitte’s Brazil and Mexico Firms
The Public Company Accounting Oversight Board said Deloitte’s Brazil firm will pay an $8 million settlement and its Mexico firm will pay a $750,000 settlement to resolve auditing violations.
Brazil-based Deloitte Touche Tohmatsu Auditores Independentes will pay $8 million, the biggest civil penalty ever imposed by the PCAOB, to settle a variety of charges, including issuing materially false audit reports and attempting to cover up audit violations by improperly altering documents and providing false testimony.
On top of that, the PCAOB announced sanctions against a dozen former partners and audit staff members of the Brazilian firm, including some of the firm’s leaders, for violations including noncooperation with a PCAOB inspection and subsequent investigation. The PCAOB also charged a former engagement partner with causing the firm to issue materially false audit reports.
As part of the settlement, Deloitte Brazil admitted it violated quality control standards and failed to cooperate with a PCAOB inspection and investigation, the first such admissions the PCAOB has ever obtained from a global network auditing firm.
In addition to paying the $8 million civil penalty, Deloitte Brazil agreed to various sanctions, including censure, to improve the firm's system of quality control, and to appoint an independent monitor to review and assess the firm's progress toward achieving remedial benchmarks. Deloitte Brazil also agreed to limitations including a prohibition on accepting certain new audit jobs until the monitor confirms the firm's progress in achieving some goals for fixing the problems. The firm will also undergo more professional education and training for its audit staff.
"Deloitte Brazil failed in its public watchdog role to protect the interests of investors by issuing materially false audit reports," said Claudius B. Modesti, director of the PCAOB Division of Enforcement and Investigations, in a statement Monday. "The orders released today detail some of the most serious misconduct the PCAOB has ever uncovered."
PCAOB chairman James Doty also referred to the penalties during a speech Monday at an AICPA conference in Washington, D.C., on current SEC and PCAOB developments.
"Where appropriate, we have commenced deeper investigations and disciplinary proceedings," he said. "We have experienced a significant increase in enforcement matters relating to potential violations by registered non-U.S. firms. The PCAOB announced settled actions in two of these matters today: one involving materially false audit reports by the Brazil office of a large firm network, the other involving an audit failure by the same network's Mexican office."
In the case of Deloitte’s Mexican firm, Galaz, Yamazaki, Ruiz Urquiza, S.C. (also known as Deloitte Mexico), was censured by the PCAOB. The firm will pay a $750,000 civil penalty for failing to effectively implement quality control policies and procedures for audit documentation.
In addition, two former Deloitte Mexico partners and another former auditor were sanctioned by the PCAOB for violations including audit deficiencies and improper alteration of work papers on a 2010 audit of a large U.S.-based mining company.
Deloitte said it has learned lessons from the matters. “Integrity in delivering high-quality services is critical to our business, our clients and the public interest; it is non-negotiable at Deloitte,” said Deloitte spokesperson Lauren Mistretta in an emailed statement. “A limited number of individuals in member firms have acted in ways that are inconsistent with this fundamental requirement. This is wholly unacceptable, and in each instance, the member firm has worked diligently with regulators to address and resolve the issues through appropriate compliance, quality control and personnel actions. We have enhanced our global focus on appropriate compliance and quality control measures with enhanced training, communications, monitoring and discipline. The lessons learned from these matters have already made our culture stronger. We respect the role of regulators, value the oversight they bring to the profession, and share the mutual goal of enhanced audit quality and unwavering integrity. Our commitment to these fundamental principles is unwavering and an essential requirement for every member firm in the network.”