The Securities and Exchange Commission has sanctioned a Florida-based auditor for violating federal laws and regulations that require lead audit partners to periodically rotate off their audit engagements with a publicly traded company in order to preserve the integrity of the financial reporting process.
The lead partner primarily responsible for the audit of a public company is prohibited from performing lead audit partner services for the same issuer for more than five consecutive fiscal years. The SEC found that Elliot Berman of the Boca Raton, Fla.-based firm Berman & Company, attempted to circumvent this auditor rotation requirement. For the audit of a company that he conducted for the previous five years, Berman installed as lead audit partner an employee at his firm who was not a CPA nor otherwise qualified to lead such an audit, according to the SEC. Berman also improperly continued to perform many of the lead audit partner functions for that audit.
Berman and his firm agreed to settle the SEC’s charges. Under the terms of the deal, Berman must pay a $15,000 penalty and is suspended for at least one year from practicing as an accountant on behalf of any publicly traded company or other entity regulated by the SEC.
The case is part of the SEC’s ongoing Operation Broken Gate, which aims to identify auditors who disregard their gatekeeper roles in violating professional standards, thereby increasing the risk of undetected fraud in financial statements that are not being properly audited.
“When investors receive an audited financial statement, they have a right to expect that the audit was performed by a qualified and independent auditor,” said Paul Levenson, director of the SEC’s Boston Regional Office, in a statement. “Berman attempted to subvert the independence rules by concocting a sham rotation and naming an unqualified employee of the firm to serve as token lead audit partner while he continued to pull the strings.”
The SEC’s investigation was conducted by Patrick Noone and Marc Jones, and the case was supervised by Kevin Currid with the assistance of the Public Company Accounting Oversight Board.
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