Crowe UK fined by US regulator

Crowe UK, its CEO, Nigel Bostock, and senior auditor, Matthew Stallabrass have been charged by the Securities and Exchange Commission (SEC) in the US for the firm’s “deficient” audit of music streaming company Akazoo Limited.

According to the SEC, Crowe falsely claimed that Akazoo had posted $120m (£94.4m) in revenue in 2018 when it had actually seen negligible amounts of revenue.

This was discovered after Akazoo went public in September 2019 via merger with a special purpose acquisition company, also known as a De-SPAC transaction.

The order also found that Crowe claimed that it conducted its 2018 audit in accordance with Public Company Accounting Oversight Board (PCAOB) standards.

In fact, its Akazoo audit team had almost no experience or training in PCAOB standards.

The SEC also found that the audit team overlooked red flags when, for instance, they failed to exercise an appropriate level of due professional care or professional scepticism when Akazoo presented fabricated agreements and inauthentic confirmation letters to the audit team.

Additionally, the SEC order found that Bostock, as the engagement partner for the Akazoo audit, among other things, failed to appropriately supervise the engagement, maintain adequate documentation, and exercise due professional care.

Lastly the SEC stated that Stallabrass, the engagement quality reviewer for the audit, failed to conduct a sufficient engagement quality review.

Without denying or admitting the SEC’s findings Crowe UK, Bostock, and Stallabrass have agreed to settle the SEC’s charges and pay penalties of $750,000 (£560,000), $25,000 (£20,000), and $10,000 (£7,865) respectively.

Eric Werner, the regional director of the Fort Worth Regional Office, said: “Crowe U.K.’s failure to properly audit Akazoo contributed to the air of legitimacy that allowed Akazoo to become a publicly traded company. We will continue holding gatekeepers accountable, especially those whose professional failings allow financial frauds to enter our public markets.”

Crowe said in a statement: “We are pleased the claims have been resolved. Audit quality and its continuous improvement remain a key priority for the firm.”

The SEC’s investigation was conducted by Samantha Martin, Melvin Warren, and Carol Stumbaugh of the SEC’s Fort Worth Regional Office.

Accountancy Today has contacted Crowe UK for comment.