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CohnReznick Gets Fined For Not Reporting an Earlier Fine to the PCAOB in a Timely Fashion

Illustration of a person with a large fine

Yo dawg, I heard you like fines.

The diligent paper-pushers at the PCAOB (the “P” stands for both paper and pushing) have sanctioned CohnReznick for failing to report key information on PCAOB Form 3 within the required timeframe. PCAOB Rule 2203, Special Reports requires any registered public accounting firm to file a special report on Form 3 to report information to the Board no later than thirty days after the occurrence of the event. In this case, the event was actually four reportable events regarding two disciplinary proceedings brought by the SEC against the firm and partners Stephen M. Wyss (engagement partner), Stephen H. Jackson (engagement quality review partner), and Robert G. Hilbert (Managing Partner of Assurance and National Director of Accounting). You can read about that here.

TL;DR the firm was sanctioned for deficiencies in its system of quality controls that led to audit failures in connection with a quarterly review and year-end audit of one client and a year-end audit of another client, resulting in a $1.9 million penalty for the firm. In one case, Wyss, Jackson, and Hilbert were confronted with indications that the client’s goodwill impairment test was not supported by sufficient evidence, but they still accepted the company’s conclusion that goodwill was not impaired even though appropriate additional audit procedures had not been performed. Separately but related, the two clients were charged by the SEC for filing fraudulent financial statements prior to their bankruptcies.

The SEC order was issued on June 8, 2022, CohnReznick did not file a Form 3 until December 12, 2022.

Tuesday’s press release makes it crystal clear that the PCAOB is sick of this shit. “As part of the Board’s efforts to strengthen enforcement, it has increased its vigilance concerning firms’ failures to disclose required events on Form 3, or to do so by the applicable deadline,” it reads.

“Registered firms must report qualifying events on Form 3 on a timely basis so that such information is available to investors and can be used as part of the Board’s oversight of those firms,” said Robert E. Rice, PCAOB Director of Enforcement and Investigations.

CohnReznick, without admitting or denying the findings, settled with the PCAOB and consented to a disciplinary order that censures the firm and imposes a $20,000 civil money penalty. The order also requires the firm to comply with its PCAOB reporting policies and procedures, including those pertaining to providing reasonable assurance that reportable events are reported on the applicable PCAOB form in a timely and complete manner.

The penalties will continue until compliance improves!

4 thoughts on “CohnReznick Gets Fined For Not Reporting an Earlier Fine to the PCAOB in a Timely Fashion

  1. This enforcement action shows the PCAOB wastes investors’ money.
    If you read PCAOB annual reports, you will find references to the PCAOB bringing “significant” enforcement actions. Does this qualify?
    What harm was there to investors from CohnReznick not filing the Form 3? None. Did you read Justice Gorsuch’s concurring opinion in the Michelle Cochran case? Gorsuch invokes the “no harm, no foul concept”. I think, since the SEC recently threw out 42 cases over some supposed internal security issue, had CohnReznick appealed this, the SEC would have thrown it out, lest the SEC be made to look absurd.
    The SEC, which “supervises” the PCAOB, knew what it did.
    If the PCAOB’s parent was aware, as far as I am concerned, the PCAOB was aware. I think this should qualify under the “corporate collective knowledge” concept.
    It’s time to recognize, the PCAOB’s disciplinary apparatus accomplishes little if any good.
    Does the PCAOB “monitor” SEC enforcement actions? If not, why not? If so, it is clear the PCAOB knew of the SEC’s actions.
    Was the PCAOB just looking for a cheap headline here? It got $20,000. So? Will it look into problems in the financial industry arising from “duration” problems?

    1. Totally agree George, this is failure to fill out a form on time (and it was filled out, just late) for information already publicly available, which the SEC reported and put a press release out on. There is zero harm here. This is just running up the count, serving no purpose. The internal security issue you referenced is actually a very big deal- much bigger than this non-sense reporting issue. In that case, enforcement staff were accessing data reserved for administrative law judges- a major Chinese Wall breach. Of course, there is no accountability for this breach- who watches the watchman after all. Hopefully the Supreme Court permanently puts an end to this judicial process when it hears Jarkesy. As a profession, CPA’s need to do our part and push back on this administrative non-sense. For too long we have gone along silently. It is past time to fix this administrative regime, and let auditors focus on risk, rather than redundant paperwork.

  2. Big deal. CohnReznick (CR) had $892 million in 2022 revenue. $20,000 is 1 / 44,500 of this. Did the PCAOB tell CR it needs a cheap win? CR says, OK. How much do you want? The PCAOB says $20,000. CR says OK, take your cheap headline and go home. This is not a serious case.
    I read the SEC’s April 5, 2022 and June 2, 2023 releases. I don’t believe the SEC’s supposed reason for dismissing the 42 cases. If it was really concerned about the collapse of its “Chinese Wall”, it would have dismissed the cases BEFORE the Michelle Cochran case was decided. It had 14 months to act. Instead it dismissed them seven weeks AFTER the Supreme Court acted.
    I read the SEC’s certiorari petition and Jarkesy’s opposition. My take: the SEC is scared.Some of the SEC’s petition struck me as absurd. We’ll see if Gorsuch and Thomas agree. The opposition states that at one point the SEC won 219 cases in a row. Ted Williams’ 1941 hitting streak was 56 games. Rocky Marciano’s boxing record was 49-0. The ULCA basketball team won 88 in a row, 1971-74. 219 in a row? Anyone with a functioning brain should see the SEC’s ALJ process is fixed.

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