It’s about time. After years of criticizing the Big Four, only to have them come back and disagree, PCAOB have called time. They’ve slapped Deloitte with a $1 million fine for serious deficiencies in audit quality related to Ligand Pharmaceuticals. PCAOB has also barred former partner James Fazio from being associated with a public accounting firm for two years, after which he can petition to get his place back at the trough. According to Financial Week:
The PCAOB alleges that Mr. Fazio “failed to perform appropriate and adequate procedures†relating to Ligand’s revenue recognition practices and also failed to ensure that others performed such procedures.
The PCAOB also found that after Deloitte determined Mr. Fazio was not performing his work adequately—ultimately asking for his resignation—it did not remove him as engagement partner on the Ligand audit. It also did nothing to assure the quality of the audit before issuing its opinion on Ligand’s financial statements.
While it is sad to see the profession brought to this position, I hope it will be a wake up call to the Big Four but more important ICAEW. The Institute focuses a lot of its attention on the smaller practitioner yet with this action, PCAOB is signaling that real attention needs focusing elsewhere.
As an aside, Jeremy Newman, managing partner at BDO has long argued that firms like his own can do just as good a job as the Big Four. Without wishing to muck rake, it seems to me that if BDO and Grant Thornton (as examples) want to take some of the Big Four business, they need to be thinking about operating at a higher level of competency than the Big Four. Much higher. With that in mind, I’ve left Jeremy a note on his blog. Any response could be interesting.
