A first for the PCAOB!
The firms often have a hard time disciplining their own. They’ve asked them to join the brotherhood after a long and arduous vetting process. It’s hard to admit they made a mistake or let the Peter Principle take hold. Any criticism of any one of them means criticism of the 50-100 partners that sponsored or “gave soundings” (a PwC term) on the guy before electing him to the partnership.
Unfortunately, Mr. Mark Olson doesn’t believe that it’s our right, as public company officers, directors and investors as well as employees of both the audit firms and the companies they audit, to know how well the firms are doing in complying with quality and other internal administrative processes. I guess we have to wait for these one-offs to trickle down…
The Public Company Accounting Oversight Board today issued Orders instituting disciplinary proceedings against Deloitte & Touche LLP and a former Deloitte audit partner, James L. Fazio, CPA, for violations of the Board’s interim auditing standards in connection with the firm’s 2003 audit for Ligand Pharmaceuticals Incorporated.
Without admitting or denying the Board’s findings, Deloitte consented to an order imposing a $1 million civil money penalty.
As described in the order, Deloitte has implemented changes to its quality control policies and procedures for identifying and addressing potential audit quality concerns regarding the performance and deployment of its audit partners. The order requires Deloitte to undertake certain documentation practices relating to these additional quality control policies and procedures. The firm also was censured.
Mr. Fazio, consented to an Order barring him from being an associated person of a public accounting firm that is registered with the PCAOB. After two years from the date of the order, Mr. Fazio may file a petition for Board consent to associate with a registered public accounting firm…
In the Deloitte order, the Board found that, before Deloitte issued its audit report, firm management was aware of facts and circumstances that raised questions about Mr. Fazio’s ability to lead public company audit engagements. Certain members of Deloitte’s management concluded first that Mr. Fazio should be removed from public company audits and ultimately that he should be asked to resign from the firm. Yet the firm left Mr. Fazio in place as the engagement partner and did not take meaningful steps to assure the quality of the audit work before issuing its audit report.
More than a year after the 2003 Ligand audit, Ligand announced that it would restate its financial statements for 2003 and other periods because its recognition of revenue from product sales upon shipment was not in accordance with GAAP. In its restatement, Ligand recognized approximately $59 million less in revenues from product sales than originally reported (a decrease of approximately 52 percent) and reported a net loss more than 2.5 times the net loss originally recognized in that year.
The Board acknowledges the assistance of the Los Angeles Regional Office of the U.S. Securities and Exchange Commission.
The Board’s orders are available on its Web site (www.pcaobus.org) under Disciplinary Proceedings.