The Securities and Exchange Commission has issued an order instituting proceedings against Mayer Hoffman McCann, an auditing firm associated with CBIZ, after it found that one of MHM’s audit and attest clients, Tradebot Systems, a high-frequency trading broker-dealer, had traded CBIZ stock.
“MHM audited Tradebot’s annual reports from 2004 through 2012,” said the SEC in its order last week. “From 2008 to at least 2013, Tradebot invested in CBIZ stock, thereby impairing MHM’s independence with respect to its audits of Tradebot’s 2008 through 2012 financial statements.”
The SEC also contended that in addition to MHM’s independence violations, the firm’s procedures were deficient in preventing independence violations for other broker-dealer and investment fund audit clients, and resulted in multiple failures to comply with the auditor independence rules. MHM also lacked an appropriate system of quality controls to detect transactions in CBIZ stock by its attest clients in order to ensure that those engagements complied with the firm’s legal and ethical requirements, according to the SEC’s order.
“MHM’s quality control and audit procedures failed to meet adequate professional standards with respect to its audits of Tradebot,” said the SEC. “During the audit of its 2012 year, Tradebot was made aware that trading in CBIZ stock would impair MHM’s independence. Tradebot continued to trade in CBIZ stock.”
A CBIZ spokesman said the company does not comment on such matters and will vigorously defend against the allegations.
MHM is a public accounting firm based in Leawood, Kan,, that is associated with the publicly traded financial services company CBIZ through an alternative practice structure and generally refers to itself as CBIZ MHM. Cleveland-based CBIZ acquired the tax and consulting practice of Mayer Hoffman McCann in 1999. Tradebot, headquartered in Kansas City, Mo., began to regularly trade in CBIZ stock in 2008 and continued to regularly trade in the stock through 2013, according to the SEC.
Prior to 2012, the SEC pointed out, Tradebot was unaware of any prohibition against it acquiring any interest in the securities of CBIZ, and prior to the 2012 audit period, MHM had never inquired about whether Tradebot traded in CBIZ stock. In about mid- 2012, MHM ’s engagement shareholder learned from Tradebot’s CFO that the company had traded in CBIZ stock and discussed with Tradebot’s CFO the possibility that the trades might affect MHM’s independence. In response, MHM’s engagement shareholder contacted the national office shareholder at MHM who oversaw independence issues and asked “whether or not that was something we need to be concerned about from an independence issue.” The MHM national office shareholder indicated he was not sure and forwarded the question to MHM’s national director of professional standards, along with MHM’s president and members of MHM’s executive committee.
On Sept. 4, 2012, Tradebot’s CFO emailed MHM’s engagement shareholder requesting further guidance on the impact of Tradebot’s trading in CBIZ, asking, “Can you send me the link pointing to the independence issue related to trading public stock?” Two days later, MHM’s engagement shareholder responded to the Tradebot CFO’s email, writing, “I do not have anything specific to this situation to send (as it does not exist). It is basically an interpretation of the SEC rules. Our New York office had inquired of a similar situation in which the entity holds CBIZ stock and it was determined to be an issue.... Unfortunately our chief independence officer is on a long vacation and I am trying to get a hold of him for thoughts.”
On Oct. 3, 2012, before resolving whether MHM was independent, Tradebot engaged MHM for the 2012 audit. In connection with that engagement, according to the SEC, MHM did not discuss with Tradebot the unresolved independence issue and proceeded to sign the engagement letter. However, the SEC contended that MHM’s potential independence conflict should have been resolved prior to signing the engagement letter.
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