8Ed.sol7.1

8Ed.sol7.1 - CASE 7.1 LIGAND PHARMACEUTICALS Synopsis In...

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CASE 7.1 LIGAND PHARMACEUTICALS Synopsis In December 2007, the PCAOB sanctioned Deloitte & Touche. The sanctions, which included a $1 million fine, were noteworthy because it was the first time that the new federal agency had punished a Big Four accounting firm. The PCAOB sanctioned Deloitte for its alleged failure to take “meaningful steps to assure the quality of audit work” on the 2003 audit of Ligand Pharmaceuticals, a San Diego-based company. At the time, Ligand described itself as an “emerging R&D and royalty-driven biotechnology company.” The PCAOB’s principal complaint against Deloitte was that the firm had not taken appropriate measures to ensure that the 2003 Ligand audit was properly staffed. In particular, the PCAOB alleged that the Ligand audit engagement partner was not qualified to serve in that capacity. In fact, before and during the 2003 Ligand audit, several Deloitte executives had considered and taken explicit measures to encourage the Ligand audit engagement partner to resign from Deloitte. These Deloitte executives had included the firm’s National Audit Managing Partner. Because the Deloitte executives failed to force the Ligand audit partner to resign, that individual supervised the entire 2003 audit and signed the unqualified opinion issued on the company’s 2003 financial statements. A subsequent investigation revealed that those financial statements contained material and seemingly obvious errors. In addition to sanctioning Deloitte, the PCAOB also sanctioned the Deloitte partner who had supervised the 2003 Ligand audit. The PCAOB sanctioned the partner for, among other things, allegedly failing to exercise proper skepticism and due professional care during the course of the 2003 Ligand audit. In late 2007 when the PCAOB announced these sanctions, the Ligand audit partner was no longer associated with Deloitte.
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255 Case 7.1 Ligand Pharmaceuticals Ligand Pharmaceuticals—Key Facts 1. The Enron and WorldCom debacles prompted the federal government to pass the Sarbanes- Oxley Act of 2002. 2. Among the reforms resulting from the SOX statute was the creation of the Public Company Accounting Oversight Board (PCAOB) to oversee the independent audit function. 3. The PCAOB’s regulatory mandate includes registering and monitoring accounting firms that audit public companies; establishing auditing, ethical, and quality control standards for those firms; and carrying out disciplinary investigations. 4. The creation of the PCAOB and other regulatory reforms introduced by SOX further complicated the already stressful role of audit partners with major accounting firms. 5. James Fazio, a Deloitte audit partner, served for several years as the audit engagement partner for Ligand Pharmaceuticals, a San Diego-based developmental stage company involved in the biotechnology industry. 6.
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8Ed.sol7.1 - CASE 7.1 LIGAND PHARMACEUTICALS Synopsis In...

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