On 1 November 2019, the PCAOB announced the settlement of disciplinary proceedings against Deloitte Korea (Deloitte Anjin LLC) and two of its associated persons, former partners Seul Hyang Wee and Hyun Seung Lee, as well as BDO Mexico (Castillo Miranda y Compañía, S.C.) and six of its associated persons
On Deloitte Korea, the PCAOB imposes a civil money penalty of $350,000 in connection with a 2014 Board inspection of the 2013 audit of an issuer client. The sum arrived at takes into account the Firm's “Extraordinary Cooperation” which included voluntarily and timely self-reporting, substantial assistance in conducting and sharing the results of its own extensive internal investigation with Board staff and implementing enhancements to its quality control policies and procedures in relevant areas.
The Board’s sanctions address Deloitte Korea's ‘failure to design and implement appropriate quality control policies and procedures to provide it with reasonable assurance that its engagement personnel performed professional services with integrity’. These failures resulted in violations of PCAOB by the aforementioned Deloitte Korea partners Wee and Lee who had oversight over the engagement team and who also in 2013 backdated their sign-offs on numerous electronic work papers to conceal the fact that they were continuing to perform audit procedures after the Firm had issued its audit report. In point of fact, after the Firm received notification from PCAOB staff that the 2013 Audit had been selected for inspection, and following the date on which the Firm had to finalise its documentation for the audit, Firm personnel improperly altered a number of hard-copy work papers by adding descriptions of audit procedures. The Firm then provided the backdated electronic work papers and the improperly altered hard-copy work papers to PCAOB inspectors during their inspection of the Firm in 2014.
In the case of BDO Mexico, the firm has been sanctioned to the tune of $500,000 and also six partners of the firm—Ignacio García Pareras, Juan Martín Gudiño Casillas ($5,000), Luis Raúl Michel ($10,000), Domínguez, Juan Francisco Olvera Díaz ($5,000), Carlos Rivas Ramos, and Bernardo Soto Peñafiel ($10,000) — have also been penalised for participating in, directing, or contributing to the improper alteration of audit documentation and providing misleading information to PCAOB inspectors during the Board’s 2017 inspection.
The six are also collectively required to complete forty hours of additional continuing professional education. The individuals may file petitions for Board consent to associate with a registered public accounting firm after the expiration of the time periods from the date of the order: Michel (three years); Olvera and Soto (two years); Gudiño (one year). From early 2015, BDO-Mexico and its personnel routinely violated PCAOB standards, including by failing to timely archive issuer audit documentation; improperly altering numerous work papers in multiple audits after those work papers should have been locked down and archived; changing the dates on their computer clocks, which concealed when they actually performed and documented work; failed to cooperate with a PCAOB inspection and to maintain a system of quality control that would provide reasonable assurance that personnel would act with integrity and in compliance with PCAOB rules and standards.
A systematic failure, in the eyes of the PCAOB, the Firm’s personnel failed to take seriously particularly the requirements of PCAOB’s standard No. 3 on Audit Documentation that provides on how a complete and final set of audit documentation should be assembled for retention as of a date, not more than 45 days after the report release date or completion date.
On the above violations, PCAOB Chairman William D. Duhnke commented, “The integrity of the PCAOB inspections process is crucial to our ability to execute our statutory mandate. We will continue to hold firms and their associated persons accountable if we uncover an attempt to manipulate that process through altering documentation. These two matters also underscore the importance of the Board’s extraordinary cooperation policy, which allows us to more effectively and efficiently investigate misconduct.”
AIB posed the question: "Since sanctions were placed, what measures has the Firm put in place to enforce and uphold PCAOB Standards tenets for Audit Documentation?
A spokesperson for Castillo Miranda stated: "Castillo Miranda is pleased to resolve this investigation which relates to matters that occurred several years ago. Audit quality, integrity, and compliance with professional standards are the cornerstones of Castillo Miranda’s assurance practice. In response to the historical events identified by the PCAOB, the Firm has taken extensive measures, including implementing a series of enhancements to its system of quality control. As the PCAOB recognised in the settled order, the Firm provided extraordinary cooperation to the PCAOB during its investigation, and going forward the Firm will take all necessary steps to ensure that its professionals comply with PCAOB requirements, as well as the highest standards of audit quality and integrity. The settled order does not impact any of the Firm’s audit opinions or any client’s financial statements."
By Zoya Malik