The Public Company Accounting Oversight Board today sanctioned Heaton & Co. and one of its partners, Kristofer Heaton, for failing to properly document five audits.
The firm violated AS 1215, Audit Documentation, by failing to assemble the proper documentation for five issuer audits. Two of those audits resulted in the firm making significant modifications and additions to the workpapers just before a PCAOB inspection. Although the firms generally disclosed in the workpapers that they had created and modified them after the respective completion dates, those additions and modifications were not adequately documented.
For the other three issuer audits, one contained numerous incomplete workpapers, another contained workpapers related to a different client, and for the third, the firm created over 90% of the workpapers after the completion date upon PCOAB enforcement staff requesting them.
"Failing, not once, but multiple times to properly document audit work, calls the integrity of the entire audit into question, and the PCAOB will take action to protect investors," PCAOB Chair Erica Williams said in a statement.
Heaton, the engagement quality review partner on the five audits, violated AS 1220, Engagement Quality Review, by failing to evaluate whether the documentation reviewed indicated the engagement team responded appropriately to risks and supported the reached conclusions. At the time Heaton provided his concurring approval for the issuance of each audit, certain documentation either did not exist or was insufficient to indicate the engagement team had responded appropriately.
"The respondents failed to comply with multiple PCAOB rules and standards," Robert Rice, director of the PCAOB's division of enforcement and investigations, said in a statement. "We will continue to bring enforcement actions to address these violations and ensure that accountability is upheld at every level of the profession."
The firm also violated PCOAB quality control standards by failing to establish, implement and monitor policies and procedures to provide reasonable assurance that firm personnel would comply with professional standards and the firm's standards of quality. During that period, Heaton substantially contributed to those violations, in violation of PCAOB Rule 3502, Responsibility Not to Knowingly or Recklessly Contribute to Violations.
Without admitting or denying the findings, the firm and Heaton consented to the PCAOB's order, which:
- Censures each respondent;
- Revokes the firm's registration with the right to apply to re-register after two years, if the firm undertakes remedial measures;
- Bars Heaton from being an associated person of a registered firm with the right to petition the Board to associate with a firm after two years, given he has completed 40 hours of continuing professional education, in addition to CPE requirements related to any professional license he holds; and,
- Imposes civil money penalties of $35,000 on the firm and $25,000 on Heaton.
