The Public Company Accounting Oversight Board today sanctioned the firm Michael T. Studer CPA and Michael Studer for repeat violations related to a 2019 audit of JMU Limited, a public company headquartered at the time in China.
Studer failed to perform testing of over 96% of JMU's reported revenue, falsely entered workpaper sign-offs for auditors who had not performed the work, and failed to appropriately supervise an engagement team that included a newly-hired contract auditor, among other violations.
"When auditors blatantly fail to do their work, it puts investors at risk," PCAOB chair Erica Williams said in a
The PCAOB issued a previous notice to Studer and the firm that such misconduct violated auditing and quality control standards. For example, in 2012, the PCAOB issued a disciplinary order against Studer and his firm regarding violations similar to the ones described above in connection with five issuer audits. And in the years leading up to 2019, various inspections notified them of similar deficiencies.
"Repeat violations of PCAOB standards raise serious doubts about an auditor's fitness to perform public company audits in compliance with those standards," Robert Rice, director of the PCAOB's division of enforcement and investigations, said in a statement. "As evidenced by today's order, the PCAOB will bar such recidivists from auditing public companies when appropriate."
According to the PCAOB's order today, during the audit of FY 2018 financial statements, Studer and the firm failed to:
- Test a material revenue stream comprising 12% of JMU's total reported revenue;
- Obtain sufficient audit evidence for the remaining 88% of JMU's revenue by disregarding basic audit sampling principles;
- Test management's estimates underlying its impairment of $106 million in goodwill intangible assets; and,
- Adequately document the engagement team's work on the audit, including where Studer entered workpaper sign-offs regarding journal entry testing and other procedures where the team had not actually performed that work.
Studer also failed to properly supervise work performed by the JMU audit engagement team. For example, he relied on the work of a contractor residing in China to perform significant parts of the audit work, despite the contractor having never previously worked with the firm and only directly interacting with Studer once, on the day they were introduced via phone call.
Additionally, the firm failed to obtain concurring approval of issuance of the JMU audit from an engagement quality reviewer.
Without admitting or denying the findings, Studer and the firm consented to the PCAOB's order, which imposes a permanent bar against Studer, a permanent revocation of the firm's PCAOB registration and a $20,000 civil money penalty imposed jointly and severally on Studer and the firm.
