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Audit firm RSM charged with violating independence rules

The U.S. unit of global accounting firm RSM International was charged Tuesday with violating the SEC’s auditor independence rules on at least 100 audit reports for 15 or more audit clients.

The SEC charged RSM US LLP in an internal administrative order (pdf) and didn’t go to court.

The firm settled the charges without admitting or denying the SEC’s findings. It agreed to pay a penalty of $950,000.

London-based RSM International has about 43,000 employees in more than 120 countries.

The U.S. unit, formerly known as McGladrey LLP, is headquartered in Chicago and has about 80 offices across the country. It’s the fifth largest accounting firm in the United States.

The SEC said RSM US violated independence rules by providing non-audit services to audit clients, including corporate secretarial services, payment facilitation, payroll outsourcing, loaned staff, financial information system design or implementation, bookkeeping, internal audit outsourcing, and investment adviser services.

Independence violations were also caused by a partner at an RSM affiliate in Australia who served on the board of a U.S. audit client.

The SEC found that RSM US’s independence controls were inadequate, “resulting in the firm’s failure to identify and avoid these prohibited non-audit services and the prohibited employment relationship.”

The violations occurred between 2014 and 2015, with certain violations remaining undetected until at least 2016, the SEC said.

The SEC said RSM US’s actions caused the audit clients to violate their obligations to have their financial statements audited by independent public accountants.


In February this year, the SEC fined Deloitte’s Japan unit, Deloitte Touche Tohmatsu LLC, $2 million for violating auditor independence rules and suspended its former CEO and director of independence for causing the violations.

In 2015, the SEC fined Deloitte’s parent, Deloitte & Touche LLP, more than $1 million for violating auditor independence rules. Deloitte’s consulting affiliate kept a business relationship with a trustee serving on the boards and audit committees of three funds Deloitte audited.

In 2014, a former chief risk officer for Deloitte & Touche settled SEC charges alleging he accepted tens of thousands of dollars in “casino markers” while serving as an adviser on the audit of the casinos’ owner. James T. Adams was suspended for two years from practicing as an accountant for public companies for concealing the casino markers from Deloitte & Touche and lying to another partner when asked if he had casino markers.

Also in 2014, KPMG paid the SEC a penalty of $8.2 million for violating auditor independence rules by providing non-audit assistance including bookkeeping and corporate finance services to the affiliates of companies it was auditing.

In 2015, the SEC charged Grant Thornton India LLP and Australia-based Grant Thornton Audit Pty Limited with auditor independence violations. Two Grant Thornton Mauritius partners served on the boards of Mauritius-based subsidiaries of companies that were Grant Thornton audit clients. The firms paid combined penalties of around $350,000 to settle the charges.

In 2014, fifteen smaller audit firms were charged by the SEC or the PCAOB with violating auditor independence rules. The SEC said eight of the 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.


Richard L. Cassin is editor at large of the FCPA Blog.

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