US watchdog fines Deloitte
$1m

A former Deloitte US audit partner has been barred from public
practice and the firm fined $1 million in an unprecedented
enforcement case against a Big Four firm by the US audit watchdog.
The Public Company Accounting Oversight Board (PCAOB) found the
firm, in particular former audit partner James Fazio, signed off
the 2003 financial statements of San Diego-based Ligand
Pharmaceuticals despite not following the proper auditing
procedures outlined in the watchdog’s interim standards.

Without admitting or denying the ruling, Deloitte agreed to
settle the order, stating: “Deloitte, on its own initiative,
established and implemented changes to its quality control policies
and procedures that directly address the PCAOB’s concerns. Deloitte
is confident that its audit policies and procedures are among the
very best.”

The case is the PCAOB’s first disciplinary hearing against a Big
Four firm, although the watchdog has taken enforcement actions
against ten smaller firms. PCAOB chairman Mark Olson said such
proceedings are vital to ensure public confidence is not undermined
by firms or individuals.

Claudius Modesti, PCAOB director of enforcement and investigations,
explained: “Registered public accounting firms must take reasonable
steps to ensure that their audit partners and other audit
professionals are competent to conduct public audits. When concerns
about an auditor’s competency arise, a firm must act with dispatch
to protect audit quality.”

In its findings, the US watchdog said Fazio failed to perform
appropriate and adequate audit procedures on Ligand’s reported
revenue from product sales which could be returned, and failed to
account for a substantial underestimation of returned products.
Fazio, who left the firm in 2005, has been barred from the
profession for two years.

The PCAOB found Deloitte management had raised concerns over the
quality of Fazio’s work and some managers wanted him removed from
public company audits and sacked. However, the firm did not remove
him from the engagement or assure the quality of the audit work
before issuing its audit report.