The Public Company Accounting Oversight Board (PCAOB) has announced a settled disciplinary order sanctioning BDO and partners Kevin Olvera and Michael Musick for violations of PCAOB rules and audit standards in connection with the audit of AAC Holdings in 2017.

The PCAOB found that the BDO and Olvera, who was serving as a partner on the audit, failed to properly evaluate three significant estimates that AAC used to value substantially all of its client-related revenue and accounts receivable. The PCAOB also found that Musick, another BDO partner, failed to exercise due professional care when performing an engagement quality review of the audit, accepting the engagement team’s judgments related to the evaluation of the significant estimates instead of identifying the deficiencies in the audit work. 

These failures occurred despite BDO, Olvera, and Musick encountering several red flags that called into question the reasonableness of the estimates. For example, BDO, Olvera, and Musick were aware that PCAOB inspectors had found deficiencies in the procedures performed to test one of the same estimates during BDO’s audit of AAC for 2015, yet the procedures performed during BDO’s 2017 audit of AAC failed to adequately address those deficiencies.

Commenting on this, PCAOB director of the enforcement and investigations division, Robert Rice, said: “PCAOB standards call for auditors to evaluate and respond appropriately to the significant risks they encounter during an audit.

The Respondents here repeatedly failed to meet these and other obligations, to the detriment of the investing public.”

Without admitting or denying the Board’s findings, BDO, Olvera, and Musick consented to the PCAOB’s order, which censured the Firm and imposed a $2m (£1.65m) civil money penalty. The Board also censured Olvera, imposed a $35,000 civil money penalty, limited his ability to act in certain roles on audits for a one-year period, and required that he complete additional continuing professional education. The Board also censured Musick, imposed a civil money penalty of $25,000, and required that he complete additional continuing professional education. 

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PCAOB enforcement staff members Tom McCann, Arnold Ramos, and Dave Eccard conducted the investigation, which was supervised by William Ryan and John Abell.