PCOAB to Deloitte: Fork Over $1 Million for a Bad 2003 Audit

The Public Company Accounting Oversight Board has reached agreement with Deloitte Touche on a $1,000,000 fine and changes in audit procedures in regard to its 2003 audit of Ligand Pharmaceuticals. Additionally, former audit partner James Fazio has accepted a ban (minimum of two years) from association with a PCAOB-registered CPA firm. The PCAOB found that Fazio failed to adjust the audit for future product returns, even in the face of evidence indicating increased risk. As a result, the audit had an insufficient level of due professional care. Additionally, the PCAOB asserted that Deloitte failed to heed warnings that Mr. Fazio may be unqualified to head public company audits.

A sobering reminder to all in auditing--do not accept engagements if there is any material possibility that personnel would be unqualified. Also, even if the firm culture is not accepting of whistle-blowing, there has to be some mechanism in place to take seriously concerns raised about the abilities of top management.