Federal regulators have ordered Los Angeles-based tax and audit firm Macias Gini & O’Connell LLP to pay a $500,000 penalty for allegedly violating auditing and quality control standards.
In a Nov. 3 enforcement order issued by the Public Company Accounting Oversight Board, the agency said the violations were connected to two audits for a California biotech company that sold consumer beauty and health products and declared Chapter 11 bankruptcy protection in August 2023. That firm was identified only as “Issuer A” in the order.
The PCAOB said that Macias Gini & O’Connell, which also goes by MGO, “failed to properly evaluate the company’s valuation of intangible assets and goodwill” during a fiscal year 2021 audit of that biotech company.
The order went on to say that MGO and Wendy Heiss, a partner at the accounting firm, did not adequately evaluate Issuer A’s “ability to continue as a going concern and its impairment of goodwill.”
“In fact, MGO’s national office provided the engagement team with technical consultation memos that concurred with the team’s conclusions regarding going concern and goodwill impairment,” the order said. “Despite being aware of evidence inconsistent with those conclusions — i.e., evidence that signaled the declining financial condition of Issuer A in 2022 and 2023 — MGO and Heiss failed to adequately resolve that inconsistent evidence before issuing an audit report containing an unqualified opinion, without a going concern explanatory paragraph, on Issuer A’s FY 2022 financial statements.”
Scott Hammon, who was serving as the engagement quality review partner for the biotech firm’s fiscal year 2022 audit, was also named in the order. According to the PCAOB, he “failed to perform his review of the audit with due professional care and in accordance” with the board’s standards.
“Notably, less than two months after the audit report date, Issuer A filed a Form 10-Q disclosing that certain factors relating to the company’s financial condition raised substantial doubt about its ability to continue as a going concern,” the PCAOB said in the order. “About three months later, Issuer A filed for bankruptcy protection under Chapter 11.”
MGO didn't respond to a request for comment sent Friday.
In a comment on LinkedIn, Francine McKenna, an accounting professor and author of The Dig blog on accounting, said that $500,000 is “a lot of dough for a firm of this size.” But she suggested that the enforcement was in line with the agency’s previously telegraphed enforcement priorities.
“I think this PCAOB said it was still going to go after bad firms and bad partners, except it was going to be the smaller ones,” she wrote. “Their firm belief is that big firms are under control.”
The order against MGO came just days before the PCAOB announced that it issued notices of delinquency and impending withdrawal to 97 PCAOB-registered audit firms. The board said it issued the notices under a rule issued in November 2024 that’s intended to help maintain a “more accurate public record of registered public accounting firms that are in operation and wish to remain registered with the Board.” This is the first time the PCAOB has used that process.
The list of 97 firms did not include MGO.
The firms have until March 1, 2027, to get back into compliance with the PCAOB, according to the notices.
