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Deloitte LLP will pay a $500,000 penalty for missing significant accounting errors in three audits of a Missouri software company.
The Public Company Accounting Oversight Board said in its order, released May 24, that the largest U.S. accounting firm had assigned auditors with insufficient experience in the software industry to audit Jack Henry & Associates Inc. Jack Henry provides information processing for banks and credit unions.
The auditors also lacked knowledge of the industry-specific revenue recognition rules that existed at the time of the 2012, 2013, and 2014 fiscal year audits of Jack Henry.
The PCAOB enforces public company audit standards in the U.S. New streamlined accounting rules for revenue recognition that came online earlier this year now apply uniformly to all industries.
In a written statement to Bloomberg Tax, Deloitte said it was pleased to have resolved the PCAOB investigation. “We identified this matter ourselves several years ago, took immediate action to remediate it, and cooperated in full with the PCAOB,” the statement said.
Deloitte consented to the PCAOB order but neither denied nor admitted the charges.
Deloitte told the board that it had improved its quality controls to better match the expertise of its engagement partners and quality reviewers with the clients they are auditing. The firm will also consider whether teams have the right industry experience when assigning internal reviewers to inspect audits, the PCAOB order said.
The accounting errors stemmed from the premature reporting of revenue from software license sales. In 2015, Jack Henry restated its financial reports for all three years to correct revenue amounts that had been reported in the wrong periods.
The Securities and Exchange Commission later imposed a $780,000 fine on Jack Henry.
Deloitte discovered the accounting errors and related auditing deficiencies as it prepared for a PCAOB inspection of the Jack Henry audit, the board’s order said.
“Audit quality depends on firms assigning people with the right skills to each engagement,” board Chairman William Duhnke said in a statement. “Audit firms also should encourage even the most experienced auditors to seek help when the situation requires it.”
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