PCAOB Settles Disciplinary Case Against Former E&Yers

The Public Company Accounting Oversight Board (PCAOB) announced on Aug. 1 that it has come to a settlement agreement regarding a disciplinary matter involving a former Ernst and Young partner and manager, whom the PCAOB said provided misleading documents and information to PCAOB inspectors and altered working papers.

The PCAOB found that the former partner, Peter C. O'Toole, and the former senior manager, Darrin G. Estella, created, backdated and added a document to audit working papers related to the most significant issue in the audit and, in addition, authorized other members of the audit engagement team to alter, add and backdate other working papers in anticipation of an upcoming PCAOB inspection.

The PCAOB also found that the two provided a written document stating that no changes had been made to the audit working papers following the audit’s completion. The PCOAB stated that neither O’Toole nor Estella ever disclosed to the PCAOB inspectors that, in fact, the working papers were altered after the documentation completion date and shortly before the inspection.

These actions violate PCAOB Rule 4006, which requires cooperation with board inspections, as well as PCAOB Auditing Standard No. 3, which governs audit documentation.

Disciplinary proceedings against the pair were initiated in December 2010. As the Sarbanes-Oxley Act and related PCAOB rules dictate, those proceedings were not public. The board determined that good cause had been shown to make the disciplinary hearing public. O’Toole and Estella subsequently consented to the disciplinary orders without admitting or denying the board’s findings.

As a result of the settlement, O’Toole, the former partner, is barred from associating with a PCAOB-registered accounting firm, though he retains the right to petition to remove this bar after three years. O’Toole also agreed to pay a $50,000 fine. Estella, the former senior manager, is barred from associating with a PCAOB-registered accounting firm, with the right to petition to remove the bar after two years.