A now former audit partner at Farmington, UT-based accounting firm Heaton & Co. was censured and fined $50,000 by the Public Company Accounting Standards Board for violating U.S. auditing rules and standards, including failing to cooperate with an inspection.
Natalie Murphy, CPA, who was the engagement partner on the audits in question, was found to have broken PCAOB Rule 4006, Duty to Cooperate With Inspectors, by failing to cooperate with inspection staff concerning the state of audit documentation and the timing of audit procedures during a 2022 inspection of Heaton & Co.
First, when PCAOB inspection staff informed Murphy of the audits selected for review, she stated that the workpaper documentation for two of the selected audits was complete and just needed to be “compiled” in the firm’s audit software. However, a substantial portion of the workpapers were incomplete at the time, according to the PCAOB. Second, Murphy obtained additional evidence and performed substantive procedures for one of the audits days before she provided the workpapers to PCAOB inspection staff while improperly representing to inspectors that all audit procedures had been completed prior to Heaton & Co. issuing the audit report.
In addition, Murphy violated AS 1215, Audit Documentation, by failing to adequately document modifications and additions made to the workpapers after the documentation completion dates for the two inspected audits.
In the settled disciplinary order, the PCAOB says:
Although Murphy generally disclosed in the work papers provided to the Inspection Staff, and in a subsequent discussion with the Inspection Staff, that she had created and modified work papers after the documentation completion date for the Issuer A Audit and the Issuer B Audit, she failed to adequately document those modifications and additions.
The work papers provided to the Inspection Staff for the Issuer A Audit and the Issuer B Audit each included a memorandum (“45-Day Memo”) created by Murphy and dated July 30, 2022, and August 26, 2022, respectively. Murphy stated in each 45-Day Memo that the audit was properly and thoroughly performed prior to the audit report date but that, for various reasons, modifications and additions to the work papers were required after the documentation completion date.
The Issuer A 45-Day Memo included a list of work papers that were modified after the documentation completion date and stated that no changes were made to any work papers other than the specified work papers. However, Murphy did not update the listing of modified work papers to include those she modified in August 2022, after the date of the Issuer A 45-Day Memo. The Issuer B 45-Day Memo did not include a list of work papers that had been modified. Nor did the Firm create any other record to adequately document the additions and modifications to the Issuer A Audit and Issuer B Audit work papers. Murphy, therefore, failed to adequately document the additions and modifications made to the work papers for both audits.
Accordingly, Murphy violated PCAOB Rule 4006 and AS 1215.
She also violated AS 1215 by failing to timely assemble a complete and final set of audit documentation for the two inspected audits and three additional issuer audits, according to the PCAOB.
“The respondent failed to comply with multiple PCAOB rules and standards, leading to the sanctions imposed by the board today. We will continue to pursue enforcement actions to address such violations and ensure that accountability is upheld at every level of the profession,” Robert Rice, director of the PCAOB’s Division of Enforcement and Investigations, said in a statement.
Without admitting or denying the findings, Murphy consented to the PCAOB’s order against her. The order censures Murphy, imposes a $50,000 civil money penalty on her, and bars her from being an associated person of a registered public accounting firm. After five years, she can petition the PCAOB to terminate the bar, provided she has completed 40 hours of continuing professional education, in addition to CPE requirements in connection with any professional license she holds.
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Tags: Accounting, Auditing, auditing standards, fines, PCAOB, PCAOB enforcement
