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PCAOB Doesn’t Take Kindly to Auditors Who Alter Audit Documentation Prior to an Inspection

For years, the PCAOB has pleaded with auditors to quit altering audit workpapers after being notified of an inspection, and some auditors continue to thumb their noses at the PCAOB. Like Humayoun Khan, a former PwC auditor, who was accused of improperly altering a previously archived workpaper in anticipation of a PCAOB inspection.

A PCAOB enforcement order on June 4 states:

Khan was an audit manager on PwC’s audit of the financial statements of issuer A for the fiscal year-ended October 31, 2015.

After PwC released its audit report for the Issuer A Audit, Khan participated in the process of assembling a complete and final set of audit documentation for retention for the audit. Shortly after completing that process, which is commonly referred to as archiving the work papers, Khan became aware that the Board’s inspection staff had selected the Issuer A Audit for review as part of the Board’s annual inspection of PwC.

Humayoun Khan


The archived workpapers consisted of two types of documents: electronic documents retained in “read-only” form in PwC’s electronic workpaper archive system and hard-copy documents that the engagement team assembled in a binder and checked into PwC’s Records Center, the order states.

This is when Khan exercised poor professional judgment:

In advance of the inspection, Khan reviewed a memorandum that the engagement team had prepared during the audit to describe certain work the team had performed to evaluate Issuer A’s disclosure of liquidity risk. The engagement team had previously archived the Liquidity Risk Memo as part of the hard-copy work papers.

After reviewing the Liquidity Risk Memo in advance of the inspection, Khan asked a junior member of the engagement team to make changes to an electronic version of the Liquidity Risk Memo that the junior member had maintained on his computer.

After the junior member of the engagement team made certain changes, he provided the revised version of the Liquidity Risk Memo to Khan in electronic form on March 12, 2016. Thereafter, on or before March 14, 2016, Khan made further changes to the Liquidity Risk Memo. Through their changes, Khan and the junior member of the engagement team substantially revised the description of the work the engagement team performed in connection with Issuer A’s liquidity risk disclosure. Khan thereafter arranged to replace the originally archived version of the Liquidity Risk Memo with the revised version in the hard-copy work paper binder, which the engagement team had checked out of PwC’s Records Center.

During the inspection, Khan provided a copy of the improperly altered liquidity risk memo to the PCAOB inspection team and failed to let them know about the changes to the document, according to the order.

Khan, who worked at PwC from October 2005 to March 2018, was barred from associating with a registered public accounting firm for one year for failing to cooperate with a board inspection and violating PCAOB audit documentation standards.