Auditor Barred from Public Company Audits
The SEC fined and barred and audit firm from performing public company audits for at least one year for failing to uncover fraudulent transactions and observe professional standards. The SEC also fined and barred the engagement partner. The SEC alleges that the respondent ignored several red flags suggesting improper revenue recognition including efforts by management to limit audit scope, payments made by the audit client rather than its customers, internal questions raised by staff, and agreements indicating that customers would not pay. The firm’s principals have been indicted for fraud. The SEC barred the audit firm from accepting public company engagements until the later of 12 months or until an independent compliance consultant certifies in writing that the firm has corrected its policies and procedures. SEC Official David Glockner admonished, “Auditors are supposed to act as gatekeepers to protect the integrity of our markets.”
OUR TAKE: A securities market gatekeeper (e.g. lawyers, auditors, administrators) cannot allow itself to become complicit in its client’s schemes by passively accepting management’s assertions and ignoring red flags that suggest unlawful conduct.