A former audit partner with the now-shuttered accounting firm BF Borgers was fined $15,000 by the Public Company Accounting Oversight Board on March 12 for what the regulator said were “significant audit failures” in her role as engagement partner in consecutive audits of NetSol Technologies Inc. (NTI) for the fiscal years ended June 30, 2021, and June 30, 2022.
In addition, the PCAOB said it found that Jaslyn Sellers violated auditor independence requirements by serving as the NTI engagement partner for a sixth consecutive year, which violates partner rotation rules.
“Engagement partners are the first line of defense for investors and the public relying on audited financial statements,” PCAOB Chair Erica Williams said in a statement on Wednesday. “Partners who shirk their obligations increase risk in the marketplace and will be held accountable.”
During BF Borgers’ audits of NTI, Sellers failed to obtain sufficient appropriate audit evidence in multiple areas that she had identified as significant risks, including revenue recognition and accounting estimates, according to the PCAOB. In addition, she authorized the issuance of audit reports for each of the NTI audits, which identified critical audit matters (CAMs). Those CAMs included descriptions of audit procedures intended to address each CAM but certain of those procedures were not actually performed.
The PCAOB disciplinary order states:
PCAOB standards require the auditor to “communicate in the auditor’s report critical audit matters relating to the audit of the current period’s financial statements or state that the auditor determined that there are no critical audit matters.” In addition, for each CAM communicated in the auditor’s report, the auditor must: identify the CAM; describe the principal considerations that led the auditor to determine that the matter is a CAM; describe how the CAM was addressed in the audit; and refer to the relevant financial statement accounts or disclosures that relate to the CAM.
Sellers authorized the issuance of the Firm’s audit reports for each of the Audits. The audit report for each of the Audits reported a CAM relating to: (i) “[r]evenue recognition identification of contractual terms in certain customer arrangements” (the “Revenue Recognition CAM”); and (ii) impairment of goodwill (the “Goodwill CAM”).
In each of the Audits, Sellers stated in the audit report that she and her team had performed numerous procedures to address the Revenue Recognition CAM and the Goodwill CAM, when in fact, they had not performed many of those procedures.
In particular, to address the Revenue Recognition CAM, Sellers falsely stated that she and the engagement team had performed the following procedure in FY 2021 and FY 2022 when they had not done so:
- “Testing the effectiveness of controls relating to the revenue recognition process, including those related to the identification of contractual terms in customer arrangements that impact the determination of the transaction price and revenue recognition.”
To address the Goodwill CAM, Sellers falsely stated that she and the engagement team had performed several procedures in FY 2021 and FY 2022 when they had not done so, including the following:
- “We tested the effectiveness of internal controls over the goodwill impairment evaluation, including controls over the selection of the discount rates and over forecasts of future revenue growth rates, EBITDA, and EBITDA margin.”
- “We evaluated the consistency of estimates and assumptions relating to revenue and EBITDA growth inherent in the discounted cash flow model for the reporting unit to those used by management in other annual forecasting activities.”
- “With the assistance of our fair value specialists, we performed a benchmarking exercise comparing management’s estimates and assumptions related to revenue growth, EBITDA and EBITDA margin for the reporting unit as of the measurement date to the revenue growth, EBITDA and EBITDA margins of a peer group of public companies for the most recent three years and the projection period.”
- “With the assistance of our fair value specialists, we evaluated (1) the valuation methodology used and (2) the projections of long-term revenue growth and the discount rates by testing the underlying source of information, and by developing a range of independent estimates and comparing those to the rates selected by management.”
As a result, Sellers failed to accurately describe the procedures the engagement team performed to address the CAMs that Sellers and the engagement team identified during the Audits, in violation of AS 3101.
Sellers also failed to properly supervise the audits, the PCAOB said. The order continues:
During the FY 2021 Audit, Sellers reviewed certain work papers prepared by the engagement team related to the key audit areas identified as significant risks, but she failed to identify that the objectives of the procedures described in those work papers were not achieved and the results of the work performed did not support the conclusions reached. For example, Sellers reviewed the Firm’s revenue work papers and concluded, despite obvious gaps in testing of certain selections and associated lacking documentation, that the work performed provided sufficient audit evidence supporting the Firm’s conclusion that NTI was appropriately recognizing revenue.
As such, Sellers failed during each of the Audits to properly supervise the engagement, in violation of AS 1201, Supervision of the Audit Engagement.
During the FY 2022 Audit, Sellers failed to review most of the work papers related to the key audit areas identified as significant risks, including revenue, and she did not otherwise evaluate whether appropriate work was performed and documented; whether the objectives of planned procedures were achieved; or whether the results of the engagement team’s work supported the conclusions reached.
As such, Sellers failed during each of the Audits to properly supervise the engagement, in violation of AS 1201.
Finally, Sellers violated Securities and Exchange Commission and PCAOB independence requirements by serving as the NTI engagement partner for a sixth consecutive year in FY 2022.
Without admitting or denying the findings, Sellers consented to the PCAOB’s order, which:
- Censures Sellers;
- Bars her from associating with a PCAOB-registered firm, with a right to reapply after two years; and
- Fines her $15,000. Based on Sellers’ conduct, the PCAOB said it would’ve imposed a civil money penalty of $75,000 if it hadn’t taken her financial resources into consideration.
“The engagement partner here abrogated her duties to appropriately audit the significant risk areas she identified, failed to abide by partner rotation requirements, and gave investors the impression certain CAMs were addressed when they were not,” said Robert Rice, director of the PCAOB’s Division of Enforcement and Investigations. “Conduct like this puts investors at risk and will not be tolerated.”
The Lakewood, CO-based BF Borgers was dismissed as the auditor of now-President Donald Trump’s Trump Media & Technology Group after receiving a permanent ban from the SEC last May over charges of “massive fraud.”
The SEC charged the firm with failure to comply with PCAOB standards in audits and reviews of more than 1,500 SEC filings between January 2021 and June 2023. Gurbir Grewal, who was director of the SEC’s Division of Enforcement at the time, called BF Borgers a “sham audit mill.”
BF Borgers agreed to pay a $12 million civil penalty to settle the charges, while managing partner Benjamin Borgers agreed to pay a $2 million civil penalty. Both agreed to permanent suspensions from serving as accountants before the SEC. They didn’t admit to or deny the SEC’s findings.
The firm and Borgers were also charged with falsely representing their work to clients as compliant with PCAOB standards, fabricating audit documentation to make it look PCAOB compliant, and falsely stating in audit reports included in more than 500 public company SEC filings that its audits complied with the standards.
Trump Media said in an SEC filing on May 3 that it replaced BF Borgers as its outside auditor with the Phoenix, AZ-based firm Semple, Marchal & Cooper. Trump Media said the decision to change independent registered public accounting firms was made with the recommendation and approval of its audit committee.
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