[Global Financial Insights] PCAOB Sanctions Audit Firm for Rule Violations

Blog|News|Account & Audit|
3 Min Read

By Taxmann
|
Last Updated on 13 October, 2025

PCAOB Sanctions Audit Firm

[2025] 179 taxmann.com 229 (Article)

Global Financial Insights is a weekly feature for the Accounts and Audit Module subscribers of Taxmann.com. It provides you with the latest updates on financial reporting and auditing practices from across the globe. Here is this week’s financial update:

1. PCAOB sanctions public accounting firm with hefty monetary penalty and debarment for multiple violations of PCAOB Rules

The Public Company Accounting Oversight Board (PCAOB) identified multiple violations of PCAOB rules and standards made by public accounting firm while conducting the audit of the financial statements. The firm has violated audit documentation requirements and also PCAOB rules and standards in evaluating revenue of the client. Furthermore, it also failed to appropriately supervise the engagement team. The aforementioned violations are discussed herewith in detail:

Violation of PCAOB Audit Documentation Standards

PCAOB audit documentation standard requires the auditor to document the procedures performed, evidence obtained and conclusion reached while conducting the audit of financial statements. Furthermore, the audit documentation shall clearly depict the work performed by the auditor.

In the extant case, the firm permitted simultaneous sign off on multiple documents as preparer or a reviewer without accessing each work paper separately to apply individual sign-offs. Some of the work papers contained audit documentation from the prior year audit or consisted of blank forms and templates. Furthermore, the audit reports and multiple other work papers in the audit file were incomplete.

Failure to adhere to PCAOB standard and auditing requirements for revenue recognition

The firm failed to perform the sufficient substantive procedures and also failed to evaluate the effectiveness of the company’s control over revenue recognition procedure. Also, the firm failed to perform retrospective review of company’s accounting estimates relating to revenue recognition and other underlying assumptions. As a result of which, the firm did not compare the prior year’s estimate to actual results.

Failure to adequately supervise engagement team

The PCAOB standard requires the engagement partner to properly supervise the work of engagement team members. In the extant case, PCAOB held the firm responsible for not supervising engagement team properly leading to failure in planning and performing audit procedures.

Considering all the above violations, PCAOB has sanctioned the firm with debarment from being an associated person of a registered public accounting firm and has also imposed monetary penalty of USD 50,000 on engagement partner.

Source –Public Company Accounting Oversight Board

2. Financial Reporting Council sanctions public accounting firm for breaches of International Standards on Auditing

The Financial Reporting Council (FRC) has issued a Final Settlement Decision Notice (FSDN) under the Audit Enforcement Procedure and imposed sanctions against public accounting firm in relation to the statutory audit of the financial statements. The firm have violated the International Standards on Auditing (ISA) with respect to impairment of non-current assets. As per International Accounting Standard (IAS) 36, the auditor shall evaluate whether the company has assessed non-current assets for impairment where there are indications that they may be overstated. The violations made by firm with respect to audit work on impairment are discussed herewith.

- Carrying value of CGU
  The firm failed to perform the audit procedures to determine whether assets and liabilities had been incorrectly included in the CGU at carrying value.
- Model Methodology
  Insufficient documents were there in audit file with regard to change in the impairment methodology. Further, the firm also failed to properly report the audit committee about the change in methodology.
- Cash flow forecasts
  The firm failed to subject the cash flow forecast assumption to a greater degree of challenge and also failed to identify a number of errors in management’s forecasts.
- Discount rate and Sensitivity analysis
  Inadequate audit procedure performed to obtain sufficient appropriate audit evidence in relation to management’s discount rate and failure to perform sensitivity analysis.
- Reconciliation to market capitalisation
  There have been difference between value in use and the group’s market capitalization. The firm failed to obtain adequate explanations for the actual difference.

The FRC has sanctioned the firm with monetary penalty of £1.25 million and a published statement in the form of a severe reprimand.

Source – Financial Reporting Council

Click Here To Read The Full Story

Disclaimer: The content/information published on the website is only for general information of the user and shall not be construed as legal advice. While the Taxmann has exercised reasonable efforts to ensure the veracity of information/content published, Taxmann shall be under no liability in any manner whatsoever for incorrect information, if any.

Taxmann

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

The statutory material is obtained only from the authorized and reliable sources
All the latest developments in the judicial and legislative fields are covered
Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
Every content published by Taxmann is complete, accurate and lucid
All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
The golden rules of grammar, style and consistency are thoroughly followed
Font and size that’s easy to read and remain consistent across all imprint and digital publications are applied

Everything on Tax and Corporate Laws of India

To subscribe to our weekly newsletter please log in/register on Taxmann.com

Author: Taxmann

The statutory material is obtained only from the authorized and reliable sources
All the latest developments in the judicial and legislative fields are covered
Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
Every content published by Taxmann is complete, accurate and lucid
All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
The golden rules of grammar, style and consistency are thoroughly followed
Font and size that's easy to read and remain consistent across all imprint and digital publications are applied

View all posts by Taxmann