The three partners at the Deloitte affiliate firm in Mexico - Galaz, Yamazaki, Ruiz Urquiza, S.C., known as Deloitte Mexico - were sanctioned by the board for failing to appropriately evaluate the 2013 and 2014 loan reserves of Prestaciones Finmart, then a Mexican subsidiary of Texas-based EZCORP.

Ricardo García, José Valle, and Rubén Guerrero (who was a manager at the time) also failed to evaluate the operating effectiveness of certain internal controls over financial reporting at Finmart but misrepresented to Deloitte US that they had done so.

Mark Adler, PCAOB acting director of enforcement and investigations, said: ‘The quality of cross-border audits depends significantly on auditors of subsidiaries adhering to their commitments to comply with PCAOB standards.

‘Today’s order makes clear that, when auditors fail to live up to those commitments and put investors at risk, the board will take appropriate action.’

EZCORP at the time was a loan provider with operations in several countries including the US and Mexico. Finmart, then its largest subsidiary, was a payroll-withholding lender.

In 2015, EZCORP filed restated financial statements for fiscal years 2012, 2013, and 2014, due in part to Finmart’s misclassification of certain loans. That misclassification caused Finmart to understate its loan reserve and loan bad debt expense. García, Valle, and Guerrero failed to perform any testing of Finmart’s loan classification and, instead, took for granted the accuracy of Finmart’s information.

EZCORP also disclosed that it had failed to maintain effective internal controls over financial reporting during that time period, and failed to recognize the extent of nonperforming loans at Finmart due to control deficiencies.

The auditors settled with the PCAOB without admitting or denying the findings. They consented to the terms and penalties of the disciplinary order, which barred them from being associated persons of a registered public accounting firm for a minimum of two years, and imposed money penalties of $50,000 (£38,000) each on García and Valle, and $30,000 (£232,000) on Guerrero.

Adler said: ‘The three Deloitte Mexico partners sanctioned today not only failed to perform appropriate procedures in a critical audit area, but also compounded their failures by telling the principal auditor that they had done work that they, in fact, had not done.

‘That sort of misconduct warrants the significant sanctions.’

The PCAOB order is here

Report by Pat Sweet