26 FEB 2024 / PEOPLE UPDATES

PCAOB Fines WithumSmith+Brown $2M for SPAC Audit Violations

- MYCPE ONE Insights Team

Summary

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The Public Company Accounting Oversight Board (PCAOB) has fined accounting firm WithumSmith+Brown (WS+B) $2 million for significant quality control violations in its audits of Special Purpose Acquisition Companies (SPACs) from January 2020 to December 2021. The PCAOB found that WS+B's quality control system did not ensure its personnel complied with professional standards and regulatory requirements due to inadequate staffing, deficient procedures, and inconsistent communications, among other issues.

PCAOB Fines WithumSmith+Brown $2 Million for SPAC Audit Violations

The Public Company Accounting Oversight Board (PCAOB) has imposed a $2 million fine on WithumSmith+Brown, PC, a prominent accounting firm, for significant quality control violations in its audits of Special Purpose Acquisition Companies (SPACs). The violations occurred between January 2020 and December 2021, during a period of rapid expansion in the firm's issuer audit practice.

Details of the Violations

During the specified period, WithumSmith+Brown's issuer audit practice experienced a substantial increase, with the number of audit reports rising from approximately 80 in 2020 to nearly 450 in 2021—a nearly 500% growth. However, the firm increased the number of partners assigned to these audits by only 50%, from 15 to 23. This disparity led to significant strain on the firm's quality control system, resulting in pervasive violations of PCAOB rules and quality control standards.

PCAOB's Findings

The PCAOB's investigation revealed that WithumSmith+Brown's quality control system failed to provide reasonable assurance that its personnel complied with applicable professional standards and regulatory requirements. Specific deficiencies included:

Inadequate staffing of issuer audits, leading to compromised audit quality.
Insufficient partner workloads, hindering the ability to discharge responsibilities with professional competence and due care.
Lack of appropriate consultation on complex issues.
Inadequate procedures to test estimates and evaluate the reasonableness of significant assumptions.
Failure to make required communications to issuer audit committees.
Insufficient procedures to determine critical audit matters.
Inadequate testing of journal entries.
Delays in filing Form APs.

Firm's Response and Remedial Actions

Without admitting or denying the findings, WithumSmith+Brown agreed to the $2 million civil money penalty and committed to:

Engaging an independent consultant to review and make recommendations regarding the firm's quality control policies and procedures.

Conducting training for all audit staff to address the identified deficiencies.

PCAOB's Statement

PCAOB Chair Erica Y. Williams emphasized the importance of maintaining quality control systems, stating, "Growth must not come at the expense of quality. The PCAOB will hold firms accountable for upholding quality control systems that protect investors."

This enforcement action underscores the PCAOB's commitment to ensuring that accounting firms adhere to rigorous standards, particularly during periods of rapid growth, to maintain the integrity of financial reporting and protect investors.

Until next time…

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