Say a PCAOB-registered accounting firm is a defendant or respondent in an administrative or disciplinary proceeding that was initiated by another regulator. That firm has to let the PCAOB know about this by filing Form 3, Special Report, within 30 days after the event. The firm also has to let the PCAOB know that it knows the disciplinary proceeding has been concluded.
RSM US was involved in two such disciplinary proceedings—one that concluded in October 2010 and another that concluded in June 2018—and filed a Form 3 with the PCAOB. The problem is the form wasn’t filed until Nov. 30, 2018, eight years after the first proceeding ended and more than four months after the second one ended.
Better late than never, right?
Wrong. The PCAOB censured RSM US and fined the firm $15,000 on March 19 for “failing to timely disclose certain reportable events to the board on PCAOB Form 3, Special Report, in violation of PCAOB rules.”
According to the PCAOB enforcement order, on or around Oct. 4, 2010, RSM (then known as McGladrey & Pullen) “became aware that the Commodity Futures Trading Commission had initiated and simultaneously concluded a disciplinary proceeding against it. The CFTC proceeding related to the firm’s provision of professional services to a company that was not an issuer.”
Caleb included a blurb about what happened in his Accounting News Roundup on Oct. 5, 2010:
Two Accounting Firms To Pay $1.7 Million To Settle CFTC Charges [Dow Jones]
“The charges stemmed from audits of Sentinel [Management Group] that were conducted between 2004 and 2006. The firms, McGladrey & Pullen LLP and Altschuler, Melvoin & Glasser LLP, agreed to pay $400,000 and $800,000, respectively, in restitution to Sentinel’s customers who suffered losses as a result of the Illinois-based futures commission merchant’s bankruptcy.
They were also required to pay civil monetary penalties of $150,000 and $350,000, respectively, according to an order that was filed Monday. McGladrey & Pullen acquired assets related to Altschuler, Melvoin & Glasser’s audit practice in 2006.”
According to a CFTC press release announcing the charges, “Sentinel’s financial statements were materially misstated and that there was a material inadequacy in Sentinel’s internal controls. … The respondents’ audits of Sentinel were ‘deficient in several areas that related directly to their failure to recognize and respond appropriately to the material misstatements in Sentinel’s financial statements and the material inadequacy in Sentinel’s internal controls.”
McGladrey and AMG also failed to conduct Sentinel’s audits in accordance with generally accepted auditing standards (GAAS), as required by CFTC regulations, the press release stated.
In the Form 3 it filed with the PCAOB, RSM wrote that “M&P neither admitted nor denied the allegations. Pursuant to the Order, M&P received a cease and desist, was ordered to pay a $150,000 civil monetary penalty plus postjudgment interest, $400,000 in restitution to certain Sentinel customers, and was required to perform certain undertakings.”
The PCAOB enforcement order also stated that on or around June 4, 2018, RSM “became aware that the Securities and Exchange Commission had initiated and simultaneously concluded a separate disciplinary proceeding against it. The SEC proceeding related to the firm’s provision of professional services to another company that was not an issuer.”
On June 14, 2018, the SEC censured but didn’t fine RSM for engaging in improper professional conduct while conducting a flawed audit of the financial statements of Madison Capital Energy Income Fund I LP, a private oil and gas fund.
The SEC stated:
RSM repeatedly violated professional auditing standards and issued an audit report on financial statements that included a schedule of investments which was materially misstated because it failed to separately report the fair value of the investments held by the fund, as required by Generally Accepted Accounting Principles. The order also finds that RSM did not perform adequate audit procedures on the fund’s schedule of investments to obtain sufficient evidence for their fair value. In addition, RSM failed to meet the American Institute of Certified Public Accountants established Quality Control Standards for CPA firms’ accounting and auditing practices that required competency and proficiency in client acceptance and continuance, staffing, and supervision on the audit, which were necessary for audits conducted in accordance with Generally Accepted Auditing Standards.
In the Form 3, RSM wrote that the firm “neither admitted nor denied the allegations. Pursuant to the Order, RSM was censured and is required to perform certain undertakings. The SEC considered remedial acts promptly undertaken by RSM and cooperation afforded the Commission staff. No monetary penalties, disgorgement, or other penalties were imposed. The Order does not restrict RSM’s ability to perform professional services.”
According to the PCAOB enforcement order, RSM blamed its internal compliance and reporting systems for not being in compliance with PCAOB reporting requirements. The firm said it has made changes to its policies and procedures to make sure it doesn’t happen again.