- Chief Compliance Officer and VP of Legal Affairs, Arrow Electronics
By 
Adrianne Appel2023-10-18T17:00:00
Audit firms should carefully weigh the pros and cons of indemnity clauses in light of the Securities and Exchange Commission’s (SEC) recent complaint against Prager Metis.
Last month, the SEC charged Prager Metis with violating independence requirements of federal securities laws on 62 audits, 11 examinations, and 144 reviews, largely because the firm included indemnification provisions in 87 client engagement letters. The agency’s complaint, filed in U.S. District Court for the Southern District of Florida, is just the latest example of its enforcement focus on auditor independence.
The prudent path for auditors is not to use indemnity clauses in any way whatsoever, said Frank Borger Gilligan, a member of the corporate, mergers and acquisitions, and securities practice group at law firm Dickinson Wright.
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The Public Company Accounting Oversight Board and Securities and Exchange Commission have emphasized in public statements auditor independence is a critical enforcement area, prompting the need for firms to reacquaint themselves with each agency’s requirements.
Accounting firm Prager Metis violated auditor independence rules through use of indemnification provisions in its engagement letters hundreds of times during a period of nearly three years, the Securities and Exchange Commission charged in a lawsuit.
The Securities and Exchange Commission is paying added scrutiny toward audit firms’ increasing use of network affiliates in their work and the potential for inconsistent quality that comes with such an approach.
Trust in the integrity of corporate finance and auditing is vital, but repeated scandals over exam cheating at the largest multinational firms are denting faith in the system globally.
Ebix announced the Securities and Exchange Commission closed an investigation into allegations against the software company’s accounting practices raised in a short seller report.
Chemours disclosed it received requests for information from the Department of Justice and Securities and Exchange Commission regarding findings from an internal review into alleged accounting misconduct by several of its top executives.
