The SEC and PCAOB collectively charged 15 audit firms for violating independence requirements in connection with audits of broker dealers. Under SEC 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 SEC investigations found that eight audit firms, which agreed to settle the cases, generally took data from financial documents provided by clients during audits and used it to prepare their financial statements and notes to the financial statements. Under auditor independence rules, firms cannot jeopardize their objectivity and impartiality in the auditing process by providing such non-audit services to audit clients. According to the SEC, by preparing the financial statements, these particular firms essentially put themselves in the position of auditing their own work, and they inappropriately aligned themselves more closely with the interests of clients’ management teams in helping prepare the books rather than strictly auditing them.
The results of the seven PCAOB investigations were similar.