The PCAOB announced the settled disciplinary order sanctioning Warren Averett for auditor independence violations during two issuer audits.

In first-ever sanctions related to a firm’s membership in an accounting alliance, the PCAOB has imposed a $200,000 (£157,814) fine, further requiring the firm to review and certify its auditor independence policies.

Under auditor independence rules, an auditor is not independent if a reasonable investor with knowledge of all relevant facts and circumstances would conclude that the auditor is not capable of exercising objective and impartial judgement, such as where the auditor and audit client share a mutual interest. 

The PCAOB found that Warren Averett violated independence requirements during its 2019 and 2020 audits of an issuer, because the firm audited valuations performed for the issuer by another accounting firm that sponsored an alliance of which Warren Averett was a member. Given its alliance membership and association with the other accounting firm, Warren Averett had a disincentive to question the reasonableness of the other accounting firm’s valuation work. Thus, both Warren Averett and the issuer shared a mutual interest in the reasonableness of the valuations. 

Commenting on this, PCAOB chair, Erica Williams, said: “Independence violations put investors at risk by threatening the objectivity that’s essential to a high-quality audit.

“The PCAOB is committed to using every tool in our enforcement toolbox to protect investors.”

The PCAOB also found that Warren Averett violated PCAOB quality control standards because, during the time it was conducting the 2019 and 2020 audits, the firm failed to implement and monitor adequate policies and procedures to reasonably ensure that its personnel would comply with applicable auditor independence requirements. 

PCAOB division of enforcement and investigations director, Robert Rice, concluded: “Registered firms must maintain robust quality control policies and procedures to make sure they consider all potential auditor independence issues and maintain their objectivity.

“In this case, the firm failed to consider the independence implications of its membership in an accounting alliance, leading to independence violations in two issuer audits.”