The Public Company Accounting Oversight Board (PCAOB) is a private sector corporation that was formed through the Sarbanes-Oxley Act of 2002 (Deloitte). It is a non-profit firm charged with overseeing the auditors of public companies to safeguard the interests of the public and investors in preparing, independent, fair and informative audit reports. Apart from registering accounting firms that audit public firms trading in the U.S.A securities market and inspecting registered public accounting companies, the PCAOB also investigates and disciplines accounting firms. Registered public firms and any individuals associated in violating specific laws and professional standards face the board for disciplinary measures (Bather). In turn, the board releases settlement orders that it has reached with registered audit companies and their associated parties. Also, it enacts sanctions through adjudicated disciplinary orders.
One such report detailing settlement orders by the PCAOB is the Richard H. Huff report released on February 26, 2019, and has been active since then (Public Company Accounting Oversight Board). After investigations, the board found, Richard H. Huff, responsible for violating PCAOB policies and auditing principles in connection with the cohesive audit of Issuer A’s internal controls and financial statements regarding its financial reports released on December 31, 2013. Huff is a licensed public accountant certified by the Pennsylvania State Board of Accountancy. He joined Grant Thornton LLP (GT) as an engagement partner and is responsible for authorizing the issuance of GT’s audit report containing an unprofessional opinion on Issuer A’s internal control over financial reporting (ICFR) and financial statements. In the settlement report, several unethical conducts are mentioned including; Huff’s neglect in failing to exercise professional care by failing to obtain substantial appropriate audit evidence concerning Issuer A’s reports on its allowance for loan losses (ALL) and its net loans, also its ALL-related in-house controls. In addition to this, Huff also failed to conduct an appropriate evaluation of Issuer A’s ALL reasonableness, a vital accounting estimate and a known significant risk (Public Company Accounting Oversight Board). Due to his failure to conduct the audit with regard to PCAOB policies, Huff did not have a fitting basis for approving the issuance of GT’s unprofessional opinion on Issuer A’s ICFR and financial statements. Huff knew that Issuer A had many material impaired loans for which the firm recorded zero exact reserves, he failed to substantially analyze if the engagement team obtained enough evidence to validate that precise reserves were not needed on the loans. He also did not make sure that the engagement team tested a suitable sample of material diminished loans, instead relying on a weak sample that wrongfully eliminated material loans from the selection. Furthermore, the tested loans that Huff did analyze he failed to; ruminate the influence of senior loans when analyzing the collectability of Issuer A’s subordinated loans and perform any procedures to look through collateral valuation even though Issuer A depended on the borrower’s capacity to refinance to support full repayment of its loans.
As a consequence of his unethical conduct, Huff is suspended, and provisions of the Board’s Act were applied on him. With regard to PCAOB rules and Section 105(c) (4) (C) of the Act, for the next one year since the settlement of the order, Huff is restricted to offer certain services such as; supervising the work of another person, working as an engagement partner or supervising the work of another person working as a professional practice director (Public Company Accounting Oversight Board).
Bather, Priscilla Burnaby and Andrea. “The Public Company Accounting Oversight Board: national and international implications.” Managerial Auditing Journal (2006): 657-669. https://doi.org/10.1108/02686900610674915.
Deloitte. Public Company Accounting Oversight Board (PCAOB). 2019. https://www.iasplus.com/en/resources/regional/pcaob. 13 March 2019.
Public Company Accounting Oversight Board. “Settled Disciplinary Orders.” 26 February 2019. pcaobus.organization. Website: https://pcaobus.org/Enforcement/Decisions/Documents/105-2019-001-Huff.pdf. 13 March 2019.