Auditing
Warren Averett Was the Recipient of a First-Ever Penalty From the PCAOB
The top 50 firm was fined $200,000 for auditor independence violations related to its membership in an accounting alliance.
Sep. 05, 2023
In first-ever sanctions levied against an audit firm related to its membership in an accounting alliance, the Public Company Accounting Oversight Board (PCAOB) on Aug. 29 fined top 50 firm Warren Averett $200,000 for auditor independence violations during the 2019 and 2020 audits of an issuer.
The issuer was identified by the PCAOB as CytoDyn, a Vancouver, WA-based clinical-stage biotechnology company focused on developing medical treatments. The accounting alliance is BDO Alliance USA, an association of accounting firms that is a wholly owned subsidiary of BDO USA, in which Warren Averett has been a member since 2015.
The PCAOB explains what happened in its disciplinary order against Warren Averett:
During the 2019 fiscal year, BDO performed certain purchase price allocation valuation services for CytoDyn with respect to acquired intangible assets. During the 2020 fiscal year, BDO performed certain derivative valuation services for CytoDyn. Warren Averett audited the BDO valuation work as part of its 2019 and 2020 audits of CytoDyn.
CytoDyn had an interest in the accuracy of its financial statements, including with respect to the valuation work performed by BDO. Warren Averett likewise had an interest in the quality of BDO’s valuation work because Warren Averett marketed itself based on its association with the BDO Alliance and the quality denoted by the BDO brand name. Based on this mutual interest, a reasonable, knowledgeable investor would conclude that Warren Averett was not capable of exercising objective and impartial judgment in auditing BDO’s valuation work.
Accordingly, Warren Averett violated PCAOB rules and standards requiring an auditor to maintain independence from its audit client. In addition, Warren Averett violated PCAOB quality control standards by failing to implement quality control policies and procedures sufficient to provide reasonable assurance that the independence implications of its BDO Alliance membership would be given appropriate consideration.
“Registered firms must maintain robust quality control policies and procedures to make sure they consider all potential auditor independence issues and maintain their objectivity,” Robert Rice, director of the PCAOB’s Division of Enforcement and Investigations, said in a press release. “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.”
Without admitting or denying the findings, Warren Averett settled with the PCAOB and consented to a disciplinary order that censures the firm, imposes a $200,000 civil money penalty, and requires the firm to review and certify its auditor independence policies and procedures.