Auditor Charged for Failure to Register with PCAOB and Multiple Audit Failures

The Securities and Exchange Commission today announced the institution of administrative proceedings against a Texas-based CPA for allegedly failing to register his firm with the Public Company Accounting Oversight Board (PCAOB) and alleged wholesale failures in auditing and reviewing the financial statements of a public company client.

According to the SEC’s order, the Enforcement Division and the Office of the Chief Accountant (OCA) allege that Christopher Knauth falsely represented to a public company audit client that his firm was registered with the PCAOB.  The Enforcement Division and OCA further allege that Knauth eventually filed an application to register his firm with the PCAOB, but the PCAOB repeatedly informed him over a nine-month period that the application was incomplete.  Despite this, the Enforcement Division and OCA allege that Knauth performed the 2018 audit and three interim reviews for the public company.  The Enforcement Division and OCA further allege that Knauth’s actions resulted in violations by the public company of the reporting requirement that auditors of public companies be registered with the PCAOB.  The Enforcement Division and OCA also allege that Knauth’s audit and interim reviews failed to comply with multiple PCAOB Auditing Standards, including failing to properly plan the audit, failing to exercise due professional care and professional skepticism, and failing to obtain sufficient appropriate audit evidence.  

“As gatekeepers, auditors perform a critical role in maintaining investor confidence in issuers’ financial statements.  Registration with the PCAOB and compliance with PCAOB auditing standards are essential to this gatekeeping function,” said Carolyn Welshhans, Associate Director of the SEC’s Division of Enforcement.

The Enforcement Division and OCA allege that Knauth engaged in improper professional conduct, willfully aided and abetted and caused his firm’s failure to register with the PCAOB, and willfully aided and abetted and caused his audit client’s reporting violations.  The administrative proceeding against Knauth will be scheduled for a public hearing before the Commission to determine whether the Enforcement Division and OCA have proven the allegations in the order and what, if any, remedial actions are appropriate.

The investigation was conducted by Jonathan Shapiro, Edward Reilly, Adrienne Adkins, and Jeffrey Anderson and supervised by Amy Friedman, Peter Rosario, and Ms. Welshhans.  The Enforcement Division’s litigation will be conducted by Paul Kisslinger and supervised by Stephan Schlegelmilch.  The Enforcement Division and OCA appreciate the assistance of the PCAOB.

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