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.