The Securities and Exchange Commission Monday sanctioned eight firms and the Public Company Accounting Oversight Board sanctioned seven others for violating auditor independence rules when they prepared the financial statements of brokerage firms that were their audit clients.
In the SEC action, the agency found that during audits, the eight firms relied on data from financial statements and notes that the audit firms themselves had prepared for the clients. That meant the audit firms were auditing their own work.
The SEC didn’t go to court. The eight firms agreed to settle the cases through administrative orders without admitting or denying the findings.
The firms were:
BKD LLP based in Springfield, Missouri
Boros & Farrington Accountancy Corporation based in San Diego
Brace & Associates PLLC based in Londonderry, New Hampshire
Robert Cooper & Company CPA PC based in Chicago
Lally & Co. LLC based in Pittsburgh
Lerner & Sipkin CPAs LLP based in New York City
OUM & Co. LLP based in San Francisco
Joseph Yafeh CPA Inc. based in Los Angeles
The SEC censured the firms and ordered them to collectively pay $140,000 in penalties.
“Under auditor independence rules, firms cannot jeopardize their objectivity and impartiality in the auditing process by providing such non-audit services to audit clients,” the SEC said.
The firms also agreed to comply with “a series of remedial undertakings designed to prevent future violations of these independence requirements.”
“By preparing the financial statements, these particular firms essentially put themselves in the position of auditing their own work, and they inappropriately aligned themselves more closely with the interests of clients’ management teams in helping prepare the books rather than strictly auditing them,” the SEC said.
The SEC’s December 8, 2014 release and the administrative orders are here.
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In a separate action Monday, the Public Company Accounting Oversight Board (PCAOB) settled disciplinary orders against seven other audit firms for violating SEC rules requiring that the auditors of brokers and dealers be independent of their audit clients.
The firms that consented to the PCAOB’s disciplinary orders are:
Alexander Thompson Arnold PLLC (Kentucky and Tennessee)
Dean Dorton Allen Ford, PLLC (Kentucky)
Goldman & Company CPAs PC (Georgia)
Lederman Zeidler Gray & Co., CPAs, LLP (California)
Leonard Rosen & Company, P.C. (New York)
Raines and Fischer LLP (New York)
Raphael and Raphael LLP (Massachusetts and New Jersey)
According to the PCAOB, each of the seven firms prepared the broker-dealer financial statements that they audited.
The PCAOB oversees audit firms’ compliance with the Sarbanes-Oxley Act, the professional standards, and the PCAOB and SEC rules, including independence rules.
Without admitting or denying the violations, the seven firms agreed to take remedial actions and pay $2,500 penalties.
The PCAOB said that “in determining appropriate sanctions in these cases, the Board considered the settling firms’ willingness to resolve these matters early in the PCAOB’s investigative process.”
The PCAOB’s December 8 release and orders are here.
Richard L. Cassin is the publisher and editor of the FCPA Blog. He can be contacted here.