Late yesterday we learned about the latest wrist slap coming from the PCAOB for an audit firm. Deloitte was fined $2 million for allowing a suspended partner, Christopher Anderson, "to become an 'associated person' of Deloitte during the period of the suspension."
I could go on but it's quite simple: there's nothing to like about this disciplinary order. If you give one rat crap about the state of the auditing profession and the PCAOB's role as an effective regulator of said profession, then this is just more of the same stuff that drives you berzerk.
For the starters, the fine is a joke. No one buys the Board's contention that this is "[an] imposition of significant sanctions" to a firm that just reported $32.4 billion in revenues. I'd ballpark Deloitte's "Nalgenes for college recruits" budget at somewhere in the neighborhood of $2 mil.
Secondly, this is another example of an audit firm either openly disobeying rules OR sitting on its own balls. It doesn't matter which because either way, it's outrageous.
This brief exchange between Professor Paul Gillis and Francine McKenna sums things up pretty well:
@ProfGillis Agree. On top of Deloitte being first, most stubborn to fix PCAOB Part 2 firm quality assurance criticisms this is disgraceful.
— Francine McKenna (@retheauditors) October 23, 2013
To understand how, it's important to understand the details and when you do understand those details, It's pretty easy to conclude that Deloitte was phoning in their oversight of this situation. here are some key paragraphs:
8. In anticipation of a potential settlement between Anderson and the Board, Deloitte began the process of removing Anderson from its Chicago audit practice and transferring him to the Audit and Assurance Services ("A&AS") Group within the firm's National Office. The A&AS Group was responsible for handling consultations with all audit engagement teams, including issuer engagement teams, and also was responsible for developing and maintaining all of Deloitte's audit policies and guidance, including for issuer audits.
9. At that time, in spring 2008, the leader of the A&AS Group in the National Office ("Group Leader"), with input from Anderson, drafted a description of Anderson's proposed job duties ("Anderson position description") for a three to five year assignment in the A&AS Group. The then-deputy managing partner of Deloitte's Audit and Enterprise Risk Services professional practice department reviewed the position description.10. Based, in part, on the position description drafted and approved by the Group Leader, Deloitte's Leadership Oversight Committee ("LOC") approved transferring Anderson to the A&AS Group of the National Office. The LOC, among other things, had primary responsibility on behalf of Deloitte for determining and directing appropriate remedial actions to be taken with respect to Deloitte partners and employees subject to regulatory action. Anderson officially transferred into the National Office in July 2008 and remained there during the suspension year.
Regardless, after all this, somehow, some way, people got confused:
The Group Leader and Anderson believed that, consistent with the limitations of the position description, Anderson would have contact with issuer engagement teams, and might provide certain audit advice of a general nature to issuer audit engagement teams. Anderson and the Group Leader did not inform the LOC of their belief, but the Group Leader later confirmed to the LOC that Anderson was "not doing any consultations." No one on the LOC advised Anderson or the Group Leader that Anderson was not permitted to provide advice of a general nature.
Prior to the issuance of the Anderson Order and the commencement of the suspension year, Deloitte sought and received guidance from the Board's staff concerning whether Anderson could "continue as a partner of the firm and [continue] to be compensated as such" pursuant to the compensation prong of the definition of "associated person," and at Deloitte's suggestion Anderson resigned from the Deloitte partnership and became a Director, a salaried position.
In seeking guidance from the Board's staff, Deloitte did not seek guidance about Anderson's intended role in Deloitte's National Office, and, during the suspension year, did not inform Board staff about Anderson's actual activities in that role.
Jon Weil asks the obvious question (and gives the answer):
[H]ow many people at Deloitte were disciplined by the board for letting this happen? None.