The Securities and Exchange Commission has settled charges with audit firm RSM related to numerous auditor independence violations, spanning more than 100 audit reports across 15 clients.
The SEC says RSM provided a range of prohibited services to audit clients from 2014 to at least 2016 as a result of failures at the firm to properly identify affiliations that might impair independence. Without admitting or denying the findings, the firm agreed to a $950,000 penalty and a number of remedial actions to address the cause for the violations, including engagement of an independent consultant.
RSM says many of the violations stem from a narrow area of the SEC’s auditor independence rules related to loans or debtor-creditor relationships, which the SEC recently revised to relax limitations. Other firms are also facing issues, RSM said.
“RSM supports the efforts by the SEC and the accounting profession to review the application and impact of the independence rules in the context of performing non-audit services in today’s world, which spawns complex, attenuated global business relationships,” the firm said in a statement.
According to the SEC, RSM provided non-audit services to audit clients that included corporate secretarial services, payment facilitation, payroll outsourcing, loaned staff, financial information system design or implementation, bookkeeping, internal audit outsourcing, and investment adviser services. The clients affected by the auditor independence violations included funds of registered investment advisors, employee benefit plans, broker-dealers, and public companies.
The SEC’s enforcement order says RSM in the United States maintains information about audit client relationships in a database established in 2011, tracking information about all work billed to clients for both audit and non-audit services. A separate database tracks information on international engagements, and U.S. auditors also complete a computer-based questionnaire to assess potential engagement risks. Engagement partners are required to search those resources as part of the firm’s client acceptance and continuation procedures.
The SEC says the firm did not have sufficient procedures, training, or systems in place during the relevant period to adequately detect or avoid circumstances where auditors would be providing services that were prohibited under independence rules. Some information was missing, some search results were misunderstood, and some consulting teams failed to complete questionnaires, causing conflicts to be overlooked, the SEC says.
“In each instance, the audit teams were unaware of the prohibited non-audit services or relationship,” the SEC notes. In its response to the action, RSM points out the SEC made no finding that the firm’s impartiality or objectivity were actually impaired by the violations.
RSM says it has significantly enhanced its controls, and the SEC credits the firm for remedial measures to address policies, procedures, systems, and training related to auditor independence. “Nonetheless, RSM is continuing to analyze and consider ways that it can further strengthen its independence processes, procedures and controls and is embracing this as an opportunity to emerge as a leader in this arena,” the firm said.
The SEC recently revised its auditor independence rules to change the level of lending relationships that would be regarded as a threat to auditor independence. The issue surfaced when Fidelity demonstrated to the SEC that the rule was so restrictive it became impossible for the entity to identify an audit firm that was qualified to audit its financial statements.
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