The PCAOB has barred, fined, and censured three Deloitte Mexico audit partners for their role in the absolute bamboozle of an audit on Prestaciones Finmart, a Mexican subsidiary of Texas-based EZCORP, Inc. Finmart accounted in FY 2013 and FY 2014 for approximately 21% and 26% of EZCORP’s consolidated assets and approximately 23% and 42% of EZCORP’s consolidated pre-tax income, respectively. This led EZCORP’s auditor (Deloitte US, duh) to engage its Mexican affiliate Deloitte Mexico to perform audit work on Finmart in compliance with PCAOB standards.
Well, according to the PCAOB, they did a shit job at the above. Worse, they told Deloitte US to totes trust them that everything was fine, which led to unqualified opinions on EZCORP’s financial statements and ICFR for FY 2013 and FY 2014 because hey, the Mexicans said it’s totally cool. Apparently not.
Ricardo Agustín García Chagoyán, José Ignacio Valle Aparicio, and Rubén Eduardo Guerrero Cervera are barred from being associated persons of a registered public accounting firm for a minimum of two years, and García and Valle were ordered to pay $50,000 in penalties, while Guerrero — who was a manager at the time period in question — was ordered to pay $30,000.
In 2015, EZCORP filed restated financial statements for fiscal years 2012, 2013, and 2014, due in part to Finmart’s misclassification of certain loans. That misclassification caused Finmart to understate its loan reserve and loan bad debt expense. García, Valle, and Guerrero failed to perform any testing of Finmart’s loan classification and, instead, took for granted the accuracy of Finmart’s information.
EZCORP also disclosed that it had failed to maintain effective ICFR during that time period, and failed to recognize the extent of nonperforming loans at Finmart due to control deficiencies.
“The quality of cross-border audits depends significantly on auditors of subsidiaries adhering to their commitments to comply with PCAOB standards,” said PCAOB Acting Director of Enforcement and Investigations Mark Adler. “Today’s order makes clear that, when auditors fail to live up to those commitments and put investors at risk, the Board will take appropriate action.”
“The three Deloitte Mexico partners sanctioned today not only failed to perform appropriate procedures in a critical audit area, but also compounded their failures by telling the principal auditor that they had done work that they, in fact, had not done,” said Director Adler. “That sort of misconduct warrants the significant sanctions imposed today.”