Enforcement of Standards by PCAOB
Enforcement of Standards by PCAOB
The Public Company Accounting Oversight Board (PCAOB) is a non-private company that is privately owned in the United States. The company is concerned with overseeing the auditing process of public industries and protecting the investor’s interests as well as the interests of the public in preparing a formative, independent, and fair audit reports. The PCAOB is a reliable leader, which encourages high-quality auditing via innovative oversight, responsive, and forward-looking (Johnson et al., 2018). At every moment, PCAOB pursues excellence, acts with integrity, works with demand accountability, embraces collaboration, and effectiveness. The PCAOB reliesy on the dedication and diligence of the people to implement and achieve their mission vision. They owe each other their very best effort as well as anticipate to bebeing held responsible. They also reward and recognize outstanding performance. The PCAOB board obtains funds from public companies. The costs incurred during processing and reviewing public accounting firm registration applications are derived from the payments made by the firms. The PCAOB is issued with the authority of investigating and disciplining the public registered accounting firms (Gipper et al., 2015). Based on the rule of the Sarbanes-Oxley Act of 2002, the PCAOB adopted securities and exchange commissions. Besides, it also formulates regulations rules and quality standards that are supposed to guide the public auditing companies, dealers, and brokers. When the corporations and individuals are found in violations, PCAOB has the power to impose appropriate suctions. To those matters relating to integrity and independence of the audit made, the audit violations termed to be significant, and to those matters that are threatening the integrity of boards regulatory oversight process (Acito et al., 2018).This paper seeks to discuss the enforcement activities of PCAOB, describing the process through which it enforces and investigates its standards. It also highlights Castillo Miranda y Compañía, S.C. disciplinary orders, discussing the actions the firm engaged besides covering members engaged in the order and the consequences offor the violations.
The Process for Investigating and Enforcing Standards by PCAOB.
The PCAOB prioritizes investigative and enforcement efforts to address the matters which pose the highest peril to stakeholders and are highly likely to discourage improper conduct . The Board concentrates their work — both international and domestic — on three key priorities as indicated on pcaobus.org. These include issues putting the integrity of the Board’s regulatory monitoring process at risk, issues associating with the integrity and independence of the audit, and significant audit violations. The PCAOB utilizes its disciplinary specialist to show that auditors who act against their professional responsibilities will encounter real penalties. The Board likewise takes disciplinary acts on auditors who portend the regulatory processes of PCAOB, such aslike declining to cooperate with the PCAOB investigation and inspection. The PCAOB might enforce a range of sanctions on the auditor, comprising a bar on the people’s association with registered accounting firms, firm's registration revocation, monetary penalties, and a censure.
The PCAOB has adopted various strategies and procedures in investigating and enforcing its standards. To make enforcement and investigation effective, the PCAOB has selected a team. The team works on enforcing the federal security laws, standards, and rules that the auditors are supposed to comply with when carrying out an audit for brokers, dealers, and public companies. The enforcement team is supposed to plan, organize, and carry out investigations concerning complex matters that may include financial frauds, according to Aobdia (2019). The violations include the formulation and release of audit reports for brokers, dealers, and public companies. The investigations are carried out for both the US and non-US based auditors.
During the enforcement process, the board analyzes records, books, audit work papers, as well as other financial and accounting information and documents. During this process, the board conducts interviews and takes sworn of testimony from the witnesses. Recommendations are made based on the board that is concerned with disciplinary actions (DeFond & Lennox, 2017). With the approvals made by the staff, the enforcement staff usually decides either to bring disciplinary actions or not against the audit firms as well as the individuals found in the administrative proceedings. During the proceeding process, the enforcement staff is supposed to litigate before officers make a hearing (Pcaobus.org, 2019). During the appealing period, the team also litigates before the board of auditors due to the failure of complying with the security laws, PCAOB, and SEC rules together with the quality standards controlling the audits meant for companies owned by public, dealers, and brokers. During the enforcement process, the staff is supposed to coordinate the enforcement issues together with other law and regulators agencies. These may include the security and exchange commission, FINRA, board’s foreign counterparts, and the department of justice, based on the view of Johnson et al. (2019).
According to the Sarbanes-Oxley Act, the PCAOB is supposed to keep disciplinary and investigation proceedings away from the public and remain confidential, based on Pcaobus.org (2019). During the enforcement process, when a respondent contests for petitions in the disciplinary proceedings for the SEC review made on a sanction imposed by the board, the rule outlines the ban should remain pending until another action is taken for SEC. Usually, SEC proceedings assessment are public pursuant to Law 301 of the SEC’s Practice Rules.
Nevertheless, the Act forbids the PCAOB from reporting the sanction publicly until and unless the SEC boosts the stay. Consequently, even upon the hearing of PCAOB officer provides a preliminary ruling that infringement have taken place and levies sanctions and that the Board has acted on the appeal, in case of any, information regarding the issue remains inaccessible to the general public, not until the issue is appealed to the SEC. The SEC then selects on its own to evaluate the final verdict of Board, or the prospect for SEC review has passed.
Disciplinary Orders Selected: Castillo Miranda y Compañía, S.C.
With this order, the PCAOB is ensuring sanctions of BDO-MEXICO based on the findings that the corporation went against the PCAOB set standards. To begin, the firm failed to timely assemble audit documents for retention based on the issuer audits. Second, the firm repeatedly made improper alterations to audit documentation. Third, the individuals failed to cooperate with the 2017 Board in inspecting the firm, and then made inappropriate alterations on work papers that came from two issuer audits. Forth, the firm also failed to implement guidelines and procedures effectively to create a sound assurance. Finally, the firm was unable to take necessary and timely actions to correct their activity that could have included making improvements to the quality control systems. The order indicates that the company's violations took place over a multi-year period, starting in 2015.
The PCAOB board also imposed sanctions to the individual respondents based on violating the rules and standards made by PCAOB. The individuals failed to timely archive issuer audit documentation (Soto, Rivas, Olvera, Michel, and Gudiño). Secondly, these individuals failed to comply with the 2017 Boards of inspection of the firm (Soto, Olvera, Michel, and Gudiño). The individuals directly and substantially came to account of the violations made in the corporation for the PCAOB audit documentation (García). Finally, they directly contributed to the breaches in quality control standards in the firm (Michel). The Board considers it appropriate and necessary, for the investor’s protection and to further the interest of public in the preparation of independent, accurate, and informative audit reports according to the Castillo Miranda y Compañía, S.C. case. In pursuant to PCAOB Rule 5205 and the institution anticipation of these proceedings, respondents provided Settlement Offer, which the Board has a strongminded to accept.
The Board also viewed it necessary and appropriate to protect the public interest together with the investors to create a formative, independent, and accurate audit reports. Therefore, the disciplinary proceedings were instituted under section 105© of the Sarbanes-Oxley act of 2002, amended under the PCAOB Rule 5200(a) (1) made against the respondents.
Members Involved in the Order
Castillo Miranda y Compañía, S.C.
This is a partnership organized within the Mexican laws, and its headquarters are found in Mexico City. The firm got its license under the Mexican laws. By being a public accounting firm, the firm is foreign registered. The firm got registered in 2004 as a member of BDO international limited. During this period, the firm worked in audits for "issuer A" and "issuer B", which are the sections of 2(a) (7) and 1001(1) (iii) of the PCAOB act and rule respectively. Based on the annual report, the industry nowadays does not carry out auditor for any issuer and has around 22 partners and 800 employees.
Juan Martín Gudiño Casillas
Gudino, aged 63, is an accountant who is publicly registered within the Mexican laws. Gudino holds the license no. 1510726. In 2015, Gudino was an engagement partner for the firm's issuer B. Besides, he also worked in Guadalajara as the partner in change. He is an associated person who is registered in the public accounting firm that is within section 2(a) (9) of the PCAOB act and 1001(p) (i) of PCAOB rule. Gudiño as well serves as an in-charge partner of the Guadalajara office Firm.
Luis Raúl Michel Domínguez
He is aged 63, a registered public accountant licensed no. 1510727. During his working time, he served in the firm’s executive committee as a member. Besides, he also worked as the industry's audit and assurance managing partner. His primary duties were to ensure that the company audits could comply with PCAOB set standards. In 2014 and 2017, Michael served as a lead partner for the company. He is an associate individual who is registered in the public accounting firm under section 2(a) (9) act and 1001(p) (i) rule of PCAOB.
Juan Francisco Olvera Díaz
Olvera is aged 52, working in Mexico and being a registered public account with a license number of 2368080. In 2014 and 2015, he served as a lead partner for the firm within two components of issuer A. Besides, Olvera also served as a member of the quality control committee in the firm. Being an associated person, Olvera is publicly registered under section 2(a) (9) of the act and 1001(p) (i) of the PCAOB rule.
Bernardo Soto Peñafiel
Soto is aged 58 and a registered public accountant licensed number 1293444. In 2014, Soto worked as an engagement partner in the firm audit issuer A and, in 2015, worked in signing audit opinions. He is an associated individual registered under public accounting in section 2(a) (9) of the act and 1001(p) (i) of PCAOB rule.
Penalties for Violations
As per this order, heavy penalties were imposed on the firm and the respondents. The PCAOB censured the Castillo Miranda Y Compania together with the other six associated individuals of the firm. Both Garcia and Rivas were suspended from being associated persons of the firm for a period lasting one year. The BDO-Mexico was imposed with a penalty of $500000. Both Soto and Michael underwent a penalty of $10,000. According to the case, Gudino was imposed with a penalty of $ 5000 as well as Olvera. All the respondents were required to complete forty hours as a continuation of their professional education in topics, which are directly associated with the issuer audits financial statements, comprising audit documentation. BDO-Mexico was required to take remedial actions based on section IV of the order. Soto, Olvera, Michel, and Gudiño were to file appeals for Board permission to associate with a licensed public accounting company upon the expiration their penalty duration from the time of the Order. Soto (2 years), Olvera (2 years), Michel (3 years), and Gudiño (one year).
Conclusion
This paper focuses on the PCAOB role of enforcement activities ands. It discusses the process under which of theit enforcements as well as investigates its standardsstandard investigation. Castillo Miranda y Compañía, S.C. disciplinary orders are also described with the critical look of firm’s actions and members involved. Finally, the paper mentions the penalties imposed to the firm and the individual members. The PCAOB has the authority to investigate and identify those firms that do not comply with the accounting regulations. The PCAOB uses the rule of the Sarbanes-Oxley Act of 2002 to create securities and exchange commissions. Besides, PCAOB has a process for investigating and enforcing its standards. For instance, it uses the staff member to enforce regulations. Among the adjudicated disciplinary order were made on BDO-Mexico. The PCAOB has various systematic strategies along with procedures in investigating and enforcing its standards. The PCAOB select a team to successfully make enforcement as well as investigation. Their team functions on enforcing the federal safety laws, rules, as well as standards, which the auditors are expected to abide by while doing auditing activities. The firm under Castillo Miranda y Compañía, S.C. was found guilty of violating five rules of the PCAOB. The individuals involved in the case include Soto, Rivas, Olvera, Michel, and Gudiño. From the case, both the firms and the individuals were found guilty of violating the PCAOB rules. As a result, heavy penalties were imposed on the firm and the respondents. Every respondent was as well expected to finish forty hours as the continuation of their professional education.
References
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