PCAOB Sanctions Audit Firm and Four Partners for Audit and Quality Control Violations

On January 23, 2024, the PCAOB announced three separate settled disciplinary orders sanctioning Haynie & Company (the “Firm”), two Audit Engagement Partners (Tyson Holman and Steven Avis), and two Engagement Quality Review Partners (Anna Hrabova and Richard Fleischman) in connection with the Firm’s audits of the 2019 financial statements of George Risk Industries, Inc. and Investview, Inc. (the “2019 Audits”).

The PCAOB found that for the audit of George Risk, the Firm and its partners failed to evaluate whether revenue was reported in conformity with applicable reporting frameworks, failed to obtain sufficient evidence for the company’s investments, and failed to notify the company’s Board of Directors and management of identified material weaknesses.  Specifically, the Firm (i) evaluated revenue recognition under accounting standards that had been superseded; (ii) failed to adequately test the fair value of certain of the company’s investments and related disclosures, despite receiving notice from the PCAOB during a 2017 inspection that similar failures had occurred; (iii) documented a material weakness of lack of ASC and PCAOB knowledge in the company’s financial statement reporting function, which was not communicated in writing to management and the Board; and (iv) violated Engagement Quality Review Standards by failing to sufficiently document the engagement quality review.

The PCAOB found that for the audit of Investview, the Firm and its partners failed to obtain sufficient audit evidence concerning the company’s accounting for its acquisition of two entities, revenue from cryptocurrency mining, and the valuation of a license agreement.  Specifically, the Firm (i) failed to evaluate whether the acquisitions in question, which involved intangible assets, were valued correctly by a third party specialist using company-supplied projections; (ii) accepted management representations that the company could recognize a “bargain purchase” gain in connection with an acquisition without conducting an appropriate evaluation; (iii) failed to evaluate the change from 2018 to 2019 in the applicable accounting standard for evaluating revenue from cryptocurrency mining; (iv) failed to audit a license agreement with a net carrying value of $2 million and which management represented was unimpaired but that was identified by company accounting staff as “no longer of value”; and (v) violated Engagement Quality Review Standards by failing to sufficiently document the engagement quality review.

The PCAOB also found that, based on the 2019 Audits, the Firm failed to maintain a system of quality control sufficient to provide reasonable assurance that engagement teams performed audits in accordance with professional standards and regulatory requirements and to establish policies and procedures to provide reasonable assurance that its policies and procedures concerning quality control were effectively designed and applied.

Without admitting or denying the findings, the firm agreed to a censure, a $400,000 civil monetary penalty, and to engage an independent consultant to review and make recommendations regarding quality control policies and procedures, Holman and Avis agreed to $65,000 civil monetary penalties and two year bars from being associated with a registered public accounting firm, and Hrabova and Fleischman agreed to $30,000 civil monetary penalties and one year limitations on practice.

A copy of the announcement and links to all three orders can be found here.