Farmington, UT-based accounting firm Heaton & Co. and firm founder and partner Kristofer Heaton were fined a combined total of $60,000 by the Public Company Accounting Oversight Board on June 12 for audit documentation, engagement quality review, and quality control failures involving five audits.
In addition to the financial penalties—$35,000 for Heaton & Co. and $25,000 to Kristofer Heaton—the firm’s PCAOB registration was revoked, with the right to apply to re-register after two years, provided the firm undertakes certain remedial measures. Kristofer Heaton was barred from being an associated person of a registered public accounting firm, with the right to petition the PCAOB for reinstatement after two years, provided he has completed 40 hours of continuing professional education in addition to the CPE requirements needed to maintain his CPA license.
According to the PCAOB, Heaton & Co. violated AS 1215, Audit Documentation, by failing to timely assemble a complete and final set of audit documentation for five issuer audits. In two of the audits, Heaton & Co. had to make significant modifications and additions to the workpapers just prior to a PCAOB inspection.
Although Heaton & Co. generally disclosed in the workpapers provided to PCAOB inspection staff that it had created and modified workpapers after the respective documentation completion dates, those additions and modifications weren’t adequately documented, the audit regulator said.
Additionally, Heaton & Co. failed to assemble complete and final sets of audit documentation for three other issuer audits, with one audit containing numerous incomplete workpapers, another containing workpapers related to a different client, and a third audit in which the firm created more than 90% of the workpapers almost two years after the documentation completion date upon receiving a request for those workpapers from enforcement staff, the PCAOB said.
“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 on Thursday.
As the engagement quality review partner on the five audits, Heaton violated AS 1220, Engagement Quality Review, by failing to appropriately evaluate whether the audit documentation reviewed indicated that the engagement team responded appropriately to significant risks and supported the conclusions reached by the engagement team.
“At the time that Heaton provided his concurring approval of issuance in each of the five audits, certain audit documentation that Heaton was required to review in connection with his engagement quality review either did not exist or was insufficient to indicate that the engagement team had responded appropriately to significant risks or supported the conclusions reached by the engagement team. Nonetheless, Heaton provided his concurring approval of issuance for each of the five audits, in violation of PCAOB standards,” the board said.
Heaton & Co. also violated PCAOB quality control standards by failing to establish, implement, and monitor adequate policies and procedures to provide reasonable assurance that its personnel would comply with professional standards and the firm’s standards of quality. During the relevant period, from 2021 to 2022, Heaton was the partner in charge of quality control and directly and substantially contributed to those quality control violations, breaking PCAOB Rule 3502, Responsibility Not to Knowingly or Recklessly Contribute to Violations.
Regarding the firm’s monitoring procedures … or lack thereof, the disciplinary order against Heaton & Co. states:
The Firm’s monitoring procedures were also severely deficient. In fact, the Firm had not conducted any internal inspections of their audits since 2018, though it was peer-reviewed twice on non-PCAOB audits and was inspected by the PCAOB three times. Furthermore, in an internal inspection conducted in 2018, one of the findings was that “[i]n the audits inspected, the audit files were not archived using the functionality of the Firm audit software and the occasional modification date was noted after 45 days of report issuance.” The Firm, however, failed to take sufficient actions to remediate the identified quality control finding. Instead, the Firm continued to rely upon the individual engagement partners to timely assemble audit documentation for retention, without any oversight or tracking of those partners’ compliance.
“The respondents failed to comply with multiple PCAOB rules and standards. We will continue to bring enforcement actions to address these violations and ensure that accountability is upheld at every level of the profession,” said Robert Rice, director of the PCAOB’s Division of Enforcement and Investigations.
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Tags: Accounting, Auditing, auditing standards, fines, PCAOB, PCAOB enforcement
