The regulator ended its investigation without filing charges in an investigation involving a foreign affiliate of a large audit firm.
A foreign affiliate of a large audit firm retained Cornerstone Research and John Owens of the University of Southern California in a regulatory investigation. The regulator claimed that the auditor failed to detect a complex fraud by management because the auditor did not adequately assess the risks of material misstatement, test the operating effectiveness of internal controls, or collect sufficient audit evidence.
Professor Owens submitted declarations in which he analyzed the audit procedures performed by the auditor. He also participated in a meeting with the regulator in which he discussed his conclusion that the procedures performed by the auditor were in conformity with PCAOB standards. The regulator subsequently ended its investigation without filing charges.