PCAOB Announces Settled Disciplinary Orders Against Seven Audit Firms for Independence Violations When Auditing Broker-Dealers

The Public Company Accounting Oversight Board today announced settled disciplinary orders against seven audit firms for violating rules requiring that the auditors of brokers and dealers be independent of their audit clients.

According to the Board's orders, each of the seven firms prepared the broker-dealer financial statements that they audited. Under Securities and Exchange Commission independence rules, which apply to audits of broker-dealers whether or not they are public companies, preparation of the financial statements filed with the Commission is a non-audit service that impairs the auditor's independence from the audit client.

"The bedrock of audit quality is independence. When an auditor's independence is impaired, the auditor's responsibility to exercise professional skepticism, and to serve the public trust, is also put at risk," said James R. Doty, PCAOB Chairman. "Adhering to independence requirements is critically important."

The firms that consented to the PCAOB's disciplinary orders are:

Each firm prepared the financial statements, or portions of the financial statements, by drafting them outright or by some combination of aggregating, revising, classifying, or supplementing financial information obtained from their audit clients.

In today's settlements, in addition to a censure, each firm agreed to undertake significant remedial measures, including:

  • To establish or revise its policies and procedures governing compliance with independence requirements,
  • To establish a policy to ensure training concerning independence requirements on at least an annual basis,
  • To ensure training concerning independence requirements on at least one occasion within 90 days and before the commencement of an engagement with a broker-dealer client,
  • To provide a copy of the PCAOB's disciplinary order to broker-dealer audit personnel, existing broker-dealer clients, and future broker-dealer clients engaged within the next three years, and
  • To certify compliance with the terms of the settlement.

In addition, each settling firm will pay a $2,500 civil money penalty. The settling firms neither admitted nor denied the Board's findings.

"Preparation of the very financial statements that the auditor is examining is a textbook example of an impairment of independence," said Claudius B. Modesti, PCAOB Director of Enforcement and Investigations.

"The SEC's rules regarding independence have been in effect for many years and prohibit the auditor's preparation of financial statements, including preparation based on client-provided information, such as schedules or reports. Auditor independence is an area of high importance for the PCAOB ," he added.

In determining appropriate sanctions in these cases, the Board considered the settling firms' willingness to resolve these matters early in the PCAOB's investigative process.

The PCAOB oversees audit firms' compliance with the Sarbanes-Oxley Act, the professional standards, and the PCAOB and SEC rules, including independence rules. The investigations that resulted in the settlements announced today originated with information obtained through the Board's inspection program.

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PCAOB Enforcement staff members C. Ian Anderson and George P. Choundas conducted the investigation. The PCAOB thanks the Commission, which today announced its own enforcement actions related to auditor independence rules violations, for its assistance in these matters.

Further information about the PCAOB's Division of Enforcement and Investigations may be found on the PCAOB website. Suspected misconduct by auditors can be reported to the PCAOB Tip & Referral Center.