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Audit committees need to dig into personal relationships

Tammy Whitehouse | October 4, 2016

Regulators have delivered a warning shot that companies and auditors need to be more careful about the personal relationships that develop in the course of the audit, as they could cross the line and impinge the auditor’s independence.

Two related, yet slightly different, enforcement actions by the Securities and Exchange Commission should give audit committees new incentive to ask more questions about the relationships between external auditors and the corporate accounting and finance personnel with whom they work closely. Across the two cases, the SEC collected penalties of more than $9 million from EY, three of its former partners, and a former corporate accounting officer, all accused of engaging in or overlooking relationships that tainted independence.

In one case, disclosed to investors...

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