backOn December 20, 2022, the PCAOB issued a settled order sanctioning two engagement partners and one EQR partner of the Utah audit firm WSRP, LLC for alleged audit failures concerning related party transactions in connection with the 2019 and 2020 audits of Freedom Holdings Corp., a Nevada corporation operating in the securities industry. According to the PCAOB, the two engagement partners identified risks of material misstatement with respect to revenues and margin loans receivable related to transactions with an affiliated broker dealer created by Freedom’s CEO in Belize, which transactions constituted the majority of Freedom’s reported 2019 and 2020 revenues. The partners allegedly failed: to inquire about the business purpose of the transactions; evaluate the financial capability of the affiliate; and evaluate whether the financial statements adequately disclosed the related party relationships in accordance with GAAP, among other things. The PCAOB further alleged that the engagement quality review partner failed to adequately evaluate the engagement team’s assessment of, and audit response to, the risk of material misstatement associated with related-party transactions.
Without admitting or denying the allegations, the engagement partners each agreed to civil monetary penalties of $35,000 and to be barred from associating with a PCAOB-registered firm (with a right to reapply after two years). The EQR partner agreed to a civil monetary penalty of $25,000 and to be barred from associating with a PCAOB-registered firm (with a right to reapply after one year). The matter is In the Matter of Scott J. Reams, CPA, Brandon R. Keyes, CPA, and James C. Budge, CPA. A copy of the PCAOB order is attached.
