Michael Studer, CPA, was permanently barred by the Public Company Accounting Oversight Board on June 24 and his firm, Michael T. Studer CPA PC, had its registration revoked after the accountant was found to be a repeat violator of U.S. auditing rules and standards.
In addition to being barred permanently from being an associated person of a registered public accounting firm and his practice being stripped of its PCAOB registration, the audit regulator fined Michael Studer and his business $20,000.
This all stems from the firm’s June 2019 audit report on the annual financial statements of JMU Ltd., a public company that at the time was headquartered in the People’s Republic of China. Among other violations, Studer failed to perform testing for more than 96% of JMU’s reported revenue, falsely entered workpaper sign-offs for auditors who hadn’t performed the work, and failed to appropriately supervise an engagement team that included a newly hired contract auditor residing in China.
“When auditors blatantly fail to do their work, it puts investors at risk,” PCAOB Chair Erica Williams said in a statement on Tuesday. “The PCAOB will take action to ensure investors on U.S. markets are protected.
As described in the PCAOB’s order, during the audit of the fiscal year 2018 financial statements of JMU, Studer and his firm:
- Failed to test a material revenue stream comprising 12% of JMU’s total reported revenue;
- Failed to obtain sufficient audit evidence for the remaining 88% of JMU’s total reported revenue by disregarding basic audit sampling principles;
- Failed to test management’s estimates underlying its impairment of $106 million in goodwill intangible assets; and
- Failed to adequately document the engagement team’s work on the audit, including where Studer entered workpaper sign-offs for engagement team members regarding journal entry testing and other procedures when they hadn’t actually performed that work.
Studer also failed to appropriately supervise work performed by the JMU audit engagement team. For example, Studer relied on the work of a contract auditor residing in China to perform significant parts of the JMU audit work in China, despite the contractor never having previously worked with the firm and had only directly interacted with Studer once—on the day they were introduced on a phone call. In addition, the firm failed to obtain concurring approval of issuance of the JMU audit report from an engagement quality reviewer.
The PCAOB also noted that the firm violated U.S. auditing rules and quality control standards during the time of the JMU audit by failing to implement adequate quality control policies and procedures, including monitoring procedures, to provide the accounting firm with reasonable assurance that the work performed by engagement personnel met applicable professional standards and regulatory requirements.
These violations were illustrated during the JMU and other audits by Studer’s and the firm’s failures to:
- Adequately perform journal entry testing to address certain identified fraud risks;
- Make mandatory audit committee communications; and
- Properly assemble and retain audit documentation in accordance with PCAOB standards.
The PCAOB concluded that Studer was directly and substantially responsible for his firm’s violations.
These violations occurred despite the audit regulator previously warning Studer and his firm that such misconduct ran afoul of PCAOB auditing standards and quality control standards. For example, in 2012, the PCAOB issued a disciplinary order against Studer and the firm finding rules violations, similar to the most recent ones, in connection with five issuer audits.
Additionally, in the years leading up to 2019, various PCAOB inspections of Michael T. Studer CPA PC also showed deficiencies in areas similar to those described in yesterday’s disciplinary order. Despite these repeated notices, Studer and his firm continued to commit the same types of auditing rules violations during the JMU audit, the PCAOB said.
“Repeat violations of PCAOB standards raise serious doubts about an auditor’s fitness to perform public company audits in compliance with those standards,” said Robert Rice, director of the PCAOB’s Division of Enforcement and Investigations. “As evidenced by today’s order, the PCAOB will bar such recidivists from auditing public companies when appropriate.”
Without admitting or denying the findings, Studer and his accounting firm consented to the PCAOB’s order against them.
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