Big 4 Audit Firm to Pay over $8 Million to Settle Independence Charges
A Big 4 audit firm agreed to pay over $8 Million in disgorgement, penalties and interest because it provided non-audit services to affiliates of three audit clients, thereby violating the independence rules. For one company, the audit firm hired a former employee of the audit affiliate and then loaned the employee back to the client to perform managerial functions. For another company, the firm continued to perform various non-audit services to an entity that had purchased an audit client. In the third identified violation, the respondent continued to perform non-audit bookkeeping and payroll services after winning the audit business. The firm identified the services as immaterial, even though, the SEC states, that there is no such exception to the independence rules. The SEC charges violations of Regulation S-X, the SEC’s rules of practice, and causing three audit clients to file misleading reports. As part of the settlement, the firm has agreed to increase review personnel, improve compliance procedures, enhance training, and appoint an independent consultant.
OUR TAKE: A Big 4 firm audits thousands of clients per year. This case shows that the SEC will not accept the argument that the firm almost always did the right thing or tried to do the right thing. Those that are registered with the SEC or that practice in front of the Commission must ensure absolute compliance at all times. That is why firms need a professional compliance program.