The Public Company Accounting Oversight Board announced settled disciplinary orders Tuesday sanctioning five audit firms for violating independence requirements in connection with audits of brokers and dealers.
All five firms agreed to orders imposing a censure, a $2,500 civil money penalty, and remedial measures. The five firms are Carnaghi & Schwark, PLLC in Roseville, Mich., Holt & Patterson, LLC in Chesterfield, Mo., Keiter, Stephens, Hurst, Gary & Shreaves, P.C. in Glen Allen, Va., Steven G. Hirshenson, Chartered in Rockville, Md., and WJB & Co., P.C., in Athens, Ga.
The five firms prepared financial statements that they also audited for broker-dealer clients. One of the five firms also maintained and prepared the client's accounting records.
Under Securities and Exchange Commission rules, maintenance and preparation of accounting records and preparation of the financial statements filed with the SEC are non-audit services that impair the auditor's independence from the audit client. SEC independence rules have long applied to audits of broker-dealers, and include restrictions on providing bookkeeping and other non-audit services related to the financial statements.
“The PCAOB has a responsibility to serve the investing public by promoting high quality, independent audits,” said PCAOB Chairman James R. Doty in a statement. “These orders reflect the board’s continued commitment to enforcing basic independence requirements that are critical to transparency, investor protection and the public interest.”
The PCAOB also decided not to sanction an unnamed sixth audit firm based on its “extraordinary cooperation,” including timely and voluntary self-reporting to the PCAOB Tip Line after discovering that it had impaired its independence, along with timely, voluntary, and meaningful remedial actions.
The PCAOB has issued guidance on how extraordinary cooperation can be considered in determining the outcome of a board investigation. According to PCAOB policy, extraordinary cooperation means voluntary and timely action beyond compliance with legal or regulatory obligations. Cooperation that could result in credit includes self-reporting violations before the conduct comes to the attention of the board or another regulator.
“The reaction of the firm that discovered its own violation of relevant independence standards is precisely what the board’s extraordinary cooperation policy contemplated and, in this instance, the firm received the maximum benefit: no discipline by the board,” said PCAOB director of enforcement and investigations Claudius B. Modesti.
The firms each consented to the respective orders without admitting or denying the PCAOB’s findings. The investigations that resulted in the settlements originated with information obtained through the PCAOB inspection program.
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