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    An Analysis of SEC and PCAOB Enforcement Actions against...
    research summary posted March 9, 2015 by Jennifer M Mueller-Phillips, tagged 11.0 Audit Quality and Quality Control, 11.02 Engagement Quality Review – Processes and Effectiveness 
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    Title:
    An Analysis of SEC and PCAOB Enforcement Actions against Engagement Quality Reviewers
    Practical Implications:

    The findings of this study:

    • “Provides important implications for practitioners and regulators, and areas for future research for those interested in engagement quality review.” (Summary Page)
    • "Shows that EQRs have been sanctioned due to violations of GAAP and GAAS; and that the violations of GAAS involved a lack of due professional care and failure to gather sufficient competent evidence. The analysis of the lack of due professional care showed that EQRs lacked professional skepticism, over-relied on management representations, and abused materiality. Too often, the EQRs were aware of audit quality problems and did little or nothing to correct them.” (pp 16-17).

    For more information on this study, please contact William F. Messier, Jr.

    Citation:

    William F. Messier Jr., Thomas M. Kozloski, and Natalia Kochetova-Kozloski (2010) An Analysis of SEC and PCAOB Enforcement Actions against Engagement Quality Reviewers. AUDITING: A Journal of Practice & Theory: November 2010, Vol. 29, No. 2, pp. 233-252.

    Keywords:
    Engagement quality review, SEC Enforcement Actions, and PCAOB Disciplinary Proceedings, Due professional care, Professional skepticism
    Purpose of the Study:

    “Engagement quality review is an integral part of the audit process. It is designed to be a quality control mechanism for assessing the quality of an audit engagement. Since the 1990s, the SEC has increased sanctions against partners serving as engagement quality reviewers. Recently, the PCAOB issued an auditing standard on engagement quality review as required by Section 103 of the Sarbanes-Oxley Act of 2002. This practice note reports on an analysis of SEC and PCAOB enforcement actions against engagement quality reviewers (EQRs). (Summary Page)”  

    Design/Method/ Approach:

    The authors have identified 28 cases since 1993 that involve some type of sanction against an EQR. They have performed three sets of coding for the 28 cases. The data for the 28 cases used in this study were gathered as follows: (1) AAERs identified by Epps and Messier (2007), (2) three graduate student groups at one US university completed a class project where they reviewed the SEC and PCAOB web sites for selected EQR cases, (3) a research assistant checked each student groups’ cases and also performed additional keyword searches of the SEC web site, and (4) two of the researchers performed keyword searches on the SEC web site and identified DPs from the PCAOB’s enforcement web site.

    Findings:

    The results of this study show the following (of the 28 cases):

    • Only eight cases involved the Big 4/5 public accounting firms.
    • All of the 28 cases involved sanctions due to violations of GAAS and 75 percent contained GAAP violations.
    • Twenty-three cases identified GAAS violations related to a lack of due professional care. Further analysis of those cases showed that the EQR demonstrated a lack of professional skepticism in 22 cases, over-relied on management representations in 20 cases, and ignored materiality concerns in 5 cases.
    • About half of the 28 cases resulted in the EQR being denied the privilege of practicing before the SEC or PCAOB for 3 or more years.
    Category:
    Audit Quality & Quality Control
    Sub-category:
    Engagement Quality Review – Processes & Effectiveness