backOn May 7, 2024, the PCAOB announced settled disciplinary orders sanctioning two former engagement partners (Jessica Etania and Arpita Joshi) and an engagement quality reviewer (Robert Garick) of the firm Liggett & Webb (the “Firm”) for alleged violations of PCAOB rules and standards during the Firm’s 2019 and 2020 financial statements audits of Innovative Foods Holdings, Inc. and Luvu Brands, Inc.
Etania and Joshi served as the engagement partners for the audits of Innovative Foods’ financial statements in 2020 and 2019, respectively. According to the PCAOB, in both years, they failed to obtain sufficient appropriate audit evidence to support the issuance of the Firm’s audit opinions by, among other things, failing to evaluate whether Innovative Food’s revenue was properly valued and presented fairly in the financial statements. With respect to the 2020 audit, the PCAOB found that Etania and the engagement team failed to review a significant contract that accounted for more than forty percent of revenue and that, as a result, the engagement team failed to design and perform audit procedures in a manner that addressed the identification of improper revenue recognition as a significant risk and a fraud risk. With respect to the 2019 audit, the PCAOB found that Joshi failed to (i) adequately test the fair value of good will and intangible assets, (ii) adequately perform substantive procedures specifically responsive to the identified significant risks over goodwill, and (iii) evaluate whether a specialist’s findings used as audit evidence supported the valuation of good will.
Etania also served as the engagement partner on the 2019 and 2020 Luvu audits. With respect to the Luvu audits, the PCAOB found that Etania violated PCAOB rules and standards by failing to (i) design and perform audit procedures in a manner that addressed the identification of improper revenue recognition as a significant risk and a fraud risk, (ii) consider whether language regarding revenue recognition in the financial statements was materially consistent as compared to the MD&A, (iii) evaluate whether revenue as disclosed in the financial statements was presented fairly, in all material respects, in conformity with the applicable financial reporting framework, and (iv) make certain required communications to the audit committee concerning identified significant risks and uncorrected misstatements.
Finally, the PCAOB found that Joshi and Garick, as engagement quality reviewers on the 2020 Luvu and 2020 Innovative Food audits, respectively, failed to exercise due professional care and professional skepticism, and therefore lacked an appropriate basis to provide their concurring approvals of issuance of the Firm’s audit opinions.
Without admitting or denying the findings, the three auditors consented to the PCAOB orders against them. Etania and Joshi agreed to a $55,000 and a $45,000 penalty, respectively, and a two-year bar from being associated with a registered public accounting firm. Garrick agreed to a $30,000 penalty and a one-year practice limitation. In each of the three orders, the Board allowed the respondent to pay the imposed penalty in installments.
A copy of the announcement and links to the orders can be found here.