Accounting & Auditing Update

Dec. 9—Public companies have been handed a not-so-subtle reminder to pay closer attention to auditor independence. At the annual AICPA conference this week, the SEC announced it had sanctioned eight audit firms with fines totaling $140,000 for violating auditor independence rules because they prepared financial statements of brokerage firms whose financial statements they were also auditing. The Public Company Accounting Oversight Board said it disciplined seven small firms with fines of $2,500 each for the same offense. More inside.

U.S. auditor independence rules targeted at tax work have done nothing to improve financial reporting quality, according to new academic research out of Singapore. The study found a big shift in non-audit services provided by audit firms, leading to a significant drop in auditor-provided tax services, especially among firms that had been accused of selling aggressive tax schemes meant to avoid taxation.

According to a new report from Source Information Services, Big 4 accounting firms outperformed the U.S. market in 2014, growing 12.8 percent to $17.5 billion in revenue compared with 2.4 percent growth for the economy overall. The U.S. market for consulting grew 9 percent in 2014 to more than $50 billion in activity. “People have more confidence in the economy now,” says Source Senior Editor B.J. Richards. More inside.

The SEC has charged Deloitte & Touche with violating auditor independence rules after it failed to notice a consulting affiliate had a business relationship with an audit client. Deloitte says it discovered the violation and reported it after the firm put in place enhanced independence measures. Deloitte will settle charges for $1.1 million. More inside.

According to a recent Audit Analytics study of fees paid in 2014 by 2,300 accelerated filers, 80.3 percent were focused on the integrated financial statement internal control audit; fees for non-audit services dipped to 19.7 percent of the total bill from the audit firm, a drop from 20 percent during the past several years. Before Sarbanes-Oxley, audit and non-audit services split almost exactly 50-50, suggesting the regulator crackdown on auditor independence violations is driving a significant gap between what companies pay for the financial statement audit compared with other non-audit services. Details inside.

The Securities and Exchange Commission has charged two Grant Thornton affiliates in India and Australia with violating auditor independence rules based on their activities in the tiny island nation of Mauritius off the east coast of Africa.

EY has agreed to a $9.3 million settlement of auditor independence charges with the SEC in two cases where auditors got too close to public company audit clients. Tammy Whitehouse reports.

The SEC may have fined EY for auditor independence violations, but investors in at least one company likely have no idea that the company’s audits may be tainted. Tammy Whitehouse has more.

The SEC is cautioning companies hoping for help from their auditors in adopting the new revenue recognition standard. They are limited by independence rules.

Auditors have some new guidance from the PCAOB about how to begin revising their audit reports to reflect new requirements that take effect this year-end.

Auditors will show some deference to judgment calls when the CFO of the client company is an alumni of the audit firm, according to emerging academic research.

New academic research suggests there is indeed a correlation between pressure on audit fees and audit quality — and it’s not pretty.

The all-new PCAOB is taking a fresh look at whether auditors need new guidance on their required communication with audit committees regarding independence.

Accountants globally have some revised ethics rules to follow, which should prompt an examination in the United States over whether there are new thresholds to meet.

Investors react when they know the name of an engagement partner on an audit, research suggests, but the reaction may be stronger than expected.

The SEC is proposing changes to its auditor independence rules to relax limitations that made compliance with loan provisions virtually impossible.

Two new enforcement actions give audit committees some textbook reminders to keep tabs on auditors regarding their compliance with professional standards.

Amid reports that KPMG is drawing a firmer line between audit and non-audit services in the United Kingdom, the firm has no similar plans in the United States.

EY may be taking steps to draw a broader line between audit and consulting services in the U.K., but the U.S. firm has no such plans. Meanwhile, PwC is silent.

Deloitte Japan has agreed to a $2 million penalty to settle charges with the SEC over auditor independence violations.