PCAOB Sanctions Three Audit Firms and Two Engagement Partners for Broker-Dealer Audit Independence Violations

WASHINGTON, Sep. 15, 2016

The Public Company Accounting Oversight Board today sanctioned three audit firms, and engagement partners at two of those firms, for violating independence requirements in audits of broker-dealers.

The PCAOB also obtained admissions to the facts, findings, and violations from two of the firms and the two engagement partners.

"It remains central to the mission of the PCAOB to promote high quality and fully independent audits of broker-dealers to protect investors," said Claudius B. Modesti, PCAOB Director of Enforcement and Investigations. "These disciplinary orders reflect both the importance of maintaining auditor independence and the consequences to firms and individuals who fail to do so."

The three firms prepared financial statements for broker-dealer audit clients, and also maintained and prepared the clients' accounting records. PCAOB and Securities and Exchange Commission independence rules, which apply to audits of broker-dealers, prohibit firms from providing bookkeeping and financial statement preparation services to audit clients. All of the firms were censured, fined, and required to take measures to prevent future violations, such as instituting additional training.

The parties named in today's orders are:

  • Berkow, Schechter & Company LLP (Connecticut) – Will pay a $15,000 civil penalty and cannot accept new broker-dealer audit clients for one year.
    • Neil H. Berkow, CPA, of Berkow, Schechter & Company LLP – Censured, will pay a $5,000 civil penalty, and is barred for one year from association with a PCAOB-registered public accounting firm.
  • Roth & Company, P.C. (Iowa) – Will pay a $20,000 civil penalty and cannot accept new broker-dealer audit clients for one year.
    • Jerome A. Carlson, CPA, of Roth & Company, P.C. – Censured, will pay a $10,000 civil penalty, and is barred for one year from association with a registered public accounting firm.

Prior to these enforcement actions, the two firms listed above and the respective engagement partners had received PCAOB inspection findings noting that their conduct impaired their independence, yet they continued to prepare their clients' financial statements. These firms and partners admitted to the facts, findings, and violations in the orders. The orders represent the first instances in which the PCAOB has obtained admissions from auditors who violated independence requirements in their audits of broker-dealers.

The PCAOB investigations were conducted by PCAOB Enforcement staff members C. Ian Anderson, George P. Choundas, Stephen M. D'Angelo, David C. Woll, Jr. and Thomas Barry.

The PCAOB oversees auditors' compliance with the Sarbanes-Oxley Act, professional standards, and PCAOB and SEC rules. Further information about the PCAOB Division of Enforcement and Investigations may be found on the PCAOB website.

Firms or individuals wishing to report suspected misconduct by auditors, or to self-report possible misconduct, may do so using the PCAOB Tip & Referral Center.