PCAOB Sanctions Michael Coglianese, CPA P.C., for Engagement Quality Review Failures on 17 Engagements

The Public Company Accounting Oversight Board (PCAOB) today announced a settled disciplinary order sanctioning Michael Coglianese, CPA P.C. (the “Firm”), for violations of PCAOB rules and standards in connection with 17 audit and attestation engagements for SEC-registered brokers and/or dealers.

Among the standards violated in this matter was AS 1220, Engagement Quality Review, which helps protect investors by increasing the likelihood auditors will identify significant audit deficiencies before issuing their audit or attestation report.

The PCAOB found that the Firm failed to employ an appropriately qualified individual to serve as the engagement quality reviewer for these engagements. Despite PCAOB standards providing that an engagement quality reviewer “must be a partner or another individual in an equivalent position,” the Firm assigned a senior manager to serve as the engagement quality reviewer on the 17 engagements. Further, although an engagement quality reviewer needs to be in a position to conduct an objective evaluation of various aspects of the engagement team’s work, at the time of the 17 engagements, the senior manager (1) reported to the individual serving as the engagement partner on the 17 engagements, (2) had his compensation set by the engagement partner, and (3) had his performance evaluated by the engagement partner.

“Engagement quality reviews protect investors by providing an important safeguard against erroneous or insufficiently supported audit opinions. When firms bypass these safeguards – by assigning individuals who do not meet the qualifications of the standard – they jeopardize investor trust and the integrity of our capital markets,” said PCAOB Chair Erica Y. Williams. “The PCAOB will hold auditors accountable when they violate our rules and standards in this area.”

Additionally, the PCAOB found that the Firm’s system of quality control failed to provide the Firm with reasonable assurance that engagement teams performed broker and/or dealer audit and attestations in accordance with applicable professional standards and regulatory requirements.

“A statement in an audit report that the audit was performed in accordance with PCAOB standards is a representation to the investing public that should never be taken lightly, and serious consequences can follow when an auditor fails to meet that commitment,” said Robert E. Rice, Director of the PCAOB’s Division of Enforcement and Investigations.

Without admitting or denying the findings, the Firm consented to the PCAOB’s order. The order:

• Censures the Firm;
• Imposes a $50,000 civil money penalty on the Firm; and
• Requires the Firm to perform certain remedial undertakings to improve its system of quality control.

PCAOB enforcement staff member Sina Mansouri conducted the investigation, supervised by William F. Ryan, John Abell, and Melissa Handrigan.

The PCAOB oversees auditors’ compliance with the Sarbanes-Oxley Act, provisions of the securities laws relating to auditing, professional standards, and PCAOB and SEC rules.

Further information about the PCAOB Division of Enforcement and Investigations is available on the PCAOB website. Firms or individuals wishing to report suspected misconduct by auditors, or to self-report possible misconduct, may visit the PCAOB Tips and Referrals page.

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About the PCAOB

The PCAOB is a nonprofit corporation established by Congress to oversee the audits of public companies in order to protect investors and further the public interest in the preparation of informative, accurate, and independent audit reports. The PCAOB also oversees the audits of brokers and dealers registered with the Securities and Exchange Commission, including compliance reports filed pursuant to federal securities laws.