Please answer the following discussion

Discuss the separate-but-related issues affecting both the engagement partner who was disciplined and the public accounting firm monetary penalty. Present your thoughts about the fairness and appropriateness of the PCAOB's actions related to the individual partner and the firm.

This case is about a company feeling pressure to report a profit and an audit partner who did not exercise a sufficient degree of professional skepticism and thus did not perform well in his role as the public watchdog.

There were two issues in this case: the failure of the auditor to perform an adequate audit and the failure of the audit firm, Deloitte & Touche, to ensure that the engagement partner on the Ligand audit was competent.

The PCAOB stated, in PCAOB Release No. 105-2007-006 issued on December 10, 2007, that Deloitte partner James Fazio had failed to exercise due professional care; exercise professional skepticism; obtain sufficient, competent evidential matter to afford a reasonable basis about the fair presentation of financial statements; evaluate subsequent events; and supervise assistants.

Specifically, in the Release, the PCAOB said that Fazio had

1. Failed to perform appropriate and adequate auditing procedures related to sales of products by Ligand for which a right of return existed.

2. Failed to supervise others to ensure the performance of these procedures.

3. Failed to perform or, alternatively, ensure performance of procedures that adequately took into account the existence of the following factors that indicated that Ligand's ability to reasonably estimate product returns may have been impaired:

a) Limited historical return experience,

b) Limited visibility of its distribution channels,

c) Periodic excess levels of product in its distribution channels, and

d) Consistent and significant understatement of its estimates of product returns.

4. Failed to identify and address the issue of Ligand's policy of excluding certain type of returns from its estimate of future returns and the adequacy of disclosing this exclusion in its financial statements.

Failure of Audit Firm:

In PCAOB Release No. 105-2007-005 issued on December 10, 2007, the PCAOB stated that Deloitte had failed to comply with certain PCAOB auditing standards.

Specifically, Deloitte had:

Failed to staff the 2003 Ligand audit engagement appropriately and so had violated the general rule that registered public accounting firms and their associates comply with PCAOB auditing and related professional practice standards (PCAOB Rules 3100, 3200T) and did not assign auditors to tasks and provide proper supervision according to their level of knowledge, skill and ability so that they could adequately evaluate audit evidence (AU 230.06, Due Professional Care in the Performance of Work; now AU-C 200.A16, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance With Generally Accepted Auditing Standards and now found in AS 1015, Due Professional Care in the Performance of Work).

Failed to comply with PCAOB auditing standards in performing the audit of Ligand's financial statements for 2003 by not exercising due professional care, exercising professional skepticism, obtaining sufficient competent evidential matter to afford a reasonable basis for an opinion regarding the financial statements and evaluating subsequent events and thus inappropriately expressed an unqualified (now "unmodified") opinion on an issuer's financial statements. (The standards violated were AU 150.02, Generally Accepted Auditing Standards, and AU 230, Due Professional Care in the Performance of Work, both of which are now in AU-C 200, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance With Generally Accepted Auditing Standards; AS 1015, Due Professional Care in the Performance of Work; AU 326, Evidential Matter, which is now found in AU-C 500, Audit Evidence; AS 1105, Audit Evidence; AU 560, Subsequent Events, and AU 561, Subsequent Discovery of Facts Existing at the Date of the Auditor's Report, both of which are now found in AU-C 560, Subsequent Events and Subsequently Discovered Facts and in AS 2905, Subsequent Discovery of Facts Existing at the Date of the Auditor's Report; and AS 2901, Consideration of Omitted Procedures After the Report Date.)

Deloitte auditors were required to determine whether Ligand had the ability to make reasonable estimates of future product returns. If a reasonable estimate cannot be made, Ligand was not to recognize revenue from sales until the right of return substantially expired or a reasonable estimate of the returns could be made.

Once Deloitte determined that Ligand had the ability to make reasonable estimates, it was required to determine whether these estimates of future returns were reasonable. Deloitte failed to do this because it either did not perform procedures to evaluate the reasonableness of Ligand's estimates of future returns, or did not perform them with adequate due care and professional skepticism, or the procedures performed produced audit evidence that indicated that Ligand's estimates of future returns were not reasonable and Deloitte did not perform appropriate follow-up procedures.

Deloitte assessed the engagement risk for the 2003 Ligand audit as greater than normal because of the difficulties associated with product sales and sales returns and its audit team planned to perform specific procedures and increase their professional skepticism to address the greater than normal risk. Deloitte, however, either failed to perform certain planned procedures or performed them without adequate due care and professional skepticism.