14. In connection with the audits of Baltia's financial statements, Respondents failed to exercise due professional care and professional skepticism and failed to plan and perform the audit in accordance with PCAOB standards. PCAOB standards require auditors to identify and assess risks of material misstatement at the financial statement level and the assertion level. Factors that should be evaluated in determining whether a risk of material misstatement is a significant risk include, among other things, the effect of qualitative and quantitative risk factors on the likelihood and potential magnitude of misstatements. Respondents failed to appropriately plan the audits by not identifying a significant risk of material misstatement related to whether Baltia's fixed assets were properly valued.
15. As of December 31, 2013 and 2014, Baltia's largest asset was a single Boeing 747 airplane. The airplane represented $1.5 million and $2.1 million of total assets, or approximately 80% of total assets, in 2013 and 2014, respectively. Except for obtaining management representations, Scrudato and the Firm failed to perform sufficient procedures in either year related to whether the Boeing 747 existed and whether Baltia had legal title to it. Further, aside from obtaining management representations, Scrudato and the Firm failed to perform sufficient procedures to evaluate whether Baltia's airplane was impaired as of December 31, 2014 in accordance with generally accepted accounting principles. In fact, Scrudato noted that an updated
impairment analysis would be completed in the future.
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