Risk & Compliance

CPA Charged With Violating Auditing Rules

Christopher Knauth allegedly performed an audit of a public company even though his firm was not registered with the PCAOB.
Matthew HellerApril 6, 2021

A Texas accountant has been charged with performing an audit for a public company even though his firm was not registered with the Public Company Accounting Oversight Board.

The U.S. Securities and Exchange said Christopher Knauth’s fiscal 2018 audit of tech firm Zenergy Brands — the first he had ever performed for a public company — also failed to comply with multiple PCAOB auditing standards.

Plano, Texas-based Zenergy, a developer of energy-conservation products and services, filed for Chapter 11 bankruptcy in October 2019.

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“As gatekeepers, auditors perform a critical role in maintaining investor confidence in issuers’ financial statements. Registration with the PCAOB and compliance with PCAOB auditing standards are essential to this gatekeeping function,” Carolyn Welshhans, associate director of the SEC’s Division of Enforcement, said in a news release.

Public companies are required to file reports with the commission that have been audited by an independent public accountant registered with the PCAOB.

Knauth co-founded Evans & Knauth in October 2017 but according to the SEC, it was not registered with the PCAOB when Zenergy hired the firm in June 2018 and Knauth failed to complete a registration by the time he conducted the audit.

“The audit report signed by [Evans & Knauth], through Knauth, falsely stated that ‘[w]e are a public accounting firm registered with the [PCAOB],’” the SEC said in an order instituting administrative proceedings.

The work Knauth performed on the audit and quarterly reviews for Zenergy allegedly failed to comply with PCAOB standards because, among other things, he failed to properly plan the audit and identify and assess risks of material misstatement, exercise due professional care and professional skepticism, obtain sufficient appropriate audit evidence, and prepare adequate audit documentation.

“It appears from the existing documentation that Knauth merely obtained certain limited documents from [Zenergy] and did not perform further analysis sufficient to identify and appropriately assess the risks of material misstatement or exercise sufficient professional skepticism, including by conducting further questioning,” the SEC said.

Corporation records show Evans & Knauth was dissolved in September 2020.