The PCAOB closed out the most active week in the panel’s history in terms of disciplining accounting firms and personnel, permanently revoking a firm’s registration, permanently barring its MP and barring a second partner for a period of five years.
On Apr. 8, the PCAOB permanently revoked Chisholm, Bierwolf, Nilson & Morrill’s registration, permanently barred MP Todd Chisholm and barred Troy Nilson with the proviso he could petition the PCAOB after a period of five years for consent to associate with a registered public accounting firm.
The enforcement action alleged violations by Chisholm and the firm of PCAOB rules, quality control standards, and auditing standards in connection with audits of three issuer clients (AlphaTrade.com, Hendrx and Powder River Petroleum International) between 2006 and 2007, and violations by Nilson and the firm of PCAOB rules and auditing standards in connection with audits of two issuer clients (Powder River Petroleum International and Jade Art Group) between 2007 and 2008.
The PCAOB said the firm expressed an unqualified audit opinion, and stated that the audit was conducted in accordance with PCAOB standards, and that the company’s financial statements were fairly presented in all material respects in conformity with U.S. GAAP in each of its audit reports for the three issuers.
The PCAOB said the firm, Chisholm and Nilson failed to perform sufficient audit procedures in connection with the issuance of the above-mentioned audit reports in violation of PCAOB rules and auditing standards, and failed to appropriately supervise the work of audit assistants.
“The firm heavily relied on audit assistants who possessed little or no prior auditing or accounting experience,” the PCAOB said. “There were no policies and procedures in place to ensure that the staff performed procedures necessary to comply with PCAOB standards, or even knew what those standards required.”
“Chisholm knew that the level of supervision that he and Nilson provided to the audit staff was not sufficient to overcome their lack of training and experience,” the PCAOB added.
The PCAOB said the trio of respondents “failure to ensure that sufficient audit procedures were performed on the audits resulted from a poor system of quality control, including inappropriate reliance on inexperienced audit assistants, excessive partner workload and deficient audit documentation practices.”
In addition to failing perform sufficient audit procedures the firm, Chisholm and Nilson also violated PCAOB rules by failing to cooperate with a Board inspection of the firm in 2007 by adding, and directing the firm’s assistants to add, audit documentation to audit files in advance of the Board inspection, according to the PCAOB.
The action on Apr. 8 was the PCAOB’s second enforcement action of the week. On Apr. 5, the PCAOB hit Price Waterhouse, Bangalore and Lovelock & Lewes with a $1.5 million penalty, the highest-ever assessed by the panel and imposed number of sanctions on the five firms known collectively as PW India (Price Waterhouse Bangalore, Lovelock & Lewes, Price Waterhouse & Co., Bangalore, Price Waterhouse, Calcutta, and Price Waterhouse & Co., Calcutta). The sanctions included: prohibiting PW India from accepting SEC Issuer Referred Engagement Work for new clients for a period of six months; requiring PW India to engage an independent monitor; requiring PW India to adopt and implement certain policies and to undertake certain actions related to PW India's system of quality control; requiring PW India to provide additional professional education and training to its associated persons.
The PCAOB has settled three enforcement actions in 2011.