SEC Sanctions 8 Broker-Dealer Audit Firms for Independence Violations
The SEC fined and censured 8 audit firms for preparing the financial statements of broker-dealer audit clients, thereby violating the auditor independence rules and the Exchange Act. According to the SEC, the firms helped their audit clients prepare the financial statements that are required to be filed with the SEC by pulling data from financial documents provided during audits. The SEC asserts that this conduct allowed the firms to audit their own work and “firms cannot play the roles of auditor and preparer at the same time.”
OUR TAKE: Unless a broker-dealer has a fairly robust financial operations function, it will have to hire two separate outside firms: one to help prepare all the financial reports for filing and a second firm to conduct the audit. Although audit firms may want to be helpful to their clients by helping with the filings, they run the risk of violating the independence rules.