The Public Company Accounting Oversight Board has censured Deloitte & Touche and fined the firm $2 million, accusing the firm of allowing a barred audit partner to continue to perform prohibited audit work.

The PCAOB reprimanded Christopher Anderson in 2008 for his part in issuing a clean audit opinion in 2003 for Navistar Financial Corp., despite learning about nearly $20 million in errors that led to overstatements of assets, revenues, and earnings. The board suspended Anderson from being associated with a registered public accounting firm for one year, then placed a restriction on his ability to serve in any audit role for an additional year, plus imposed a fine of $25,000.

Now the PCAOB says it discovered that Deloitte demoted Anderson from partner to salaried director, reassigned him to an audit group in the firm's national office, and allowed him to engage in activities connected with the preparation or issuance of public company audit reports. The $2 million fine represents the biggest the PCAOB has ever issued. Only once before has PCAOB issued a fine that big, in 2012 to EY for failing to flag questionable accounting for the sales returns reserve at Medicis Pharmaceutical, even when auditors and a later internal review determined the accounting to be wrong.

"When the Board suspends an auditor, it does so to protect investors," said PCAOB Chairman James Doty in a written statement. "Deloitte permitted the former partner to conduct work precluded by the Board's order and put investors at risk. Considering the magnitude of the penalty, firms should recognize the importance of abiding by the limitations imposed on a PCAOB-suspended auditor.”

According to the PCAOB, Deloitte demoted and transferred Anderson in anticipation of the disciplinary action, then allowed him to remain an “associated person” in violation of the PCAOB suspension. The board says Anderson worked on developing firm-wide policies and audit guidance and participated in three national office consultations on public company audit engagements. Deloitte knew of the suspension order, but allowed Anderson to continue to work in violation of the order without the consent of the board or the Securities and Exchange Commission, the PCAOB says.

Deloitte said in a statement it takes “very seriously” orders and actions of the PCAOB and is “pleased” to resolve the matter with the board. “As acknowledged in the PCAOB's order, in response to the 2008 one-year suspension of one of our professionals, Deloitte took several significant actions to restrict the deployment of this individual,” the firm said. “However, we recognize more could have been done at that time to monitor compliance with the restrictions we put in place. The robust policies and monitoring procedures we have since instituted fully address the issue and will prevent a similar matter from arising in the future.“

The PCAOB imposed “significant sanctions” to send a message, said Claudius Modesti, director of enforcements and investigations at the PCAOB, in a statement. Registered firms are expected to take sufficient steps to ensure that suspended or barred auditors adhere to the bar. The order and fine against Deloitte are meant to demonstrate that failing to take such steps will lead to such sanctions, he said.

The PCAOB also recently rebuked Deloitte and one of its audit partners for doctoring an audit file in anticipation of a PCAOB inspection. Deloitte said when Nathan Suddeth was fingered for adding documents to a closed audit firm that the firm removed him from all direct audit responsibility for any public or private client and he had left the firm.

Topics