The SEC this week issued cease-and-desist orders against eight auditors, fining them $140,000 collectively, for violating auditor independence rules by preparing the very broker-dealer financials they were to audit. Broker-dealer auditors are bound by auditor-independence criteria established under Reg. S-X. By using BD-provided documents to prepare the client’s financial statements, the sanctioned firms “essentially put themselves in the position of auditing their own work,” said the SEC’s release, here.
The Release is another in a growing trend in which Enforcement “batches” smaller administrative enforcement actions into sweeps, with group announcements. The Commission has had auditor independence as a targeted issue under its “Broken Gates” initiative. Similar to the more well-known “Broken Windows” enforcement (policing) policy (which opines that ignoring smaller infractions encourages lawlessness), the “Broken Gates” initiative focuses on accountants, lawyers, compliance professionals and others in gate-keeping roles with duties that help preserve or improve standards of conduct in the industry.