Audits Gone AWOL and PCAOB Brings the Hammer Down

If you think an audit without proper paperwork is like a burger without the bun—messy, unconvincing, and kind of sketchy, you’re not alone. The PCAOB just put its foot down on Heaton & Co. and partner Kristofer Heaton for five flawed audit jobs that barely passed the sniff test. Spoiler alert: the documentation wasn’t just late—it was basically MIA.

Where Did the Workpapers Go?

Turns out, Heaton & Co. wasn’t just taking shortcuts; they were practically sawing through the floor. The firm flubbed five issuer audits by skipping AS 1215, which requires audit documentation to be complete, final, and timely. But instead of finishing up the paperwork pronto, they made major edits and additions after the official completion dates, right before PCAOB inspectors came knocking. One case? Over 90% of the audit files were cooked up almost two years late. Talk about procrastinating on the job. In one instance, workpapers for one client somehow included files meant for another. In another, the firm’s notes were so patchy they made a Swiss cheese look solid. The PCAOB had seen enough.

Quality Control or Quantity Confusion?

Remember the classic quote: “Quality means doing it right when no one is looking.” Heaton & Co. missed that memo. The firm was also dinged for violating PCAOB quality control standards by failing to put proper systems in place to ensure team members followed the rules. And guess who was steering the ship? Yup—Kristofer Heaton himself, who served as the partner in charge of quality control. Instead of ensuring the engagement team addressed risks and backed up their conclusions, Heaton signed off on audits where some documentation didn’t even exist. That’s like giving a restaurant five stars before trying the food.

What’s the Damage?

In a classic “you broke it, you bought it” move, both the firm and Heaton agreed to settle without admitting guilt—but they’re paying the price. The PCAOB’s disciplinary order includes:

• Censure of both parties
• $35,000 fine for the firm, $25,000 for Heaton
• Revocation of the firm’s registration (they can reapply in two years, after some serious remedial work)
• Bar on Heaton from associating with any registered firm for two years (he’ll need to complete 40 extra CPE hours to even be considered again)

All in all, that’s a $60,000 hit, a two-year timeout, and a big red flag for audit professionals everywhere. And here’s the twist—this might be one of the PCAOB’s last disciplinary showdowns in its current form. In late May, the House passed sweeping tax and spending legislation—known on the Hill as the One Big Beautiful Bill—which includes a provision to hand over PCAOB’s responsibilities to the SEC. The bill is now under Senate review, and odds are, at least most of it will pass. If that happens, the SEC could soon be running the audit enforcement show. Talk about shaking things up.

Lessons From the Audit Doghouse

The PCAOB’s message is clear: if you’re going to do the work, prove it. No backdating, no patch jobs, no sleight-of-hand folder swaps. As PCAOB Chair Erica Williams put it, “Failing, not once, but multiple times to properly document audit work, calls the integrity of the entire audit into question.” And when the integrity of an audit is shaky, so is investor confidence. Robert Rice, director of PCAOB’s enforcement division, doubled down: “We will continue to bring enforcement actions… and ensure that accountability is upheld at every level of the profession.” In other words, don’t expect them to look the other way.

For the rest of the accounting crowd, this is your friendly reminder to dot your i’s, cross your t’s, and keep that documentation airtight. Because when regulators come knocking, "we forgot" won’t cut it—and neither will playing fast and loose with the rules. Who’s next on PCAOB’s radar? Time will tell. But for now, Heaton & Co. are learning the hard way that “close enough” just doesn’t fly in public accounting. Stay sharp—subscribe to our newsletter for weekly insights that matter to accounting, tax, and finance pros.