The SEC fined a large audit firm $9.3 Million and fined and barred engagement partners because close personal relationships compromised auditor independence for 2 separate public company engagements. In one case, the SEC asserts that the engagement partner spent over $100,000 over a 3-year period to develop a close personal relationship with the issuer’s CFO, including sharing vacation homes and going to football games. In the other case, the SEC alleges that the engagement partner maintained a romantic relationship with the issuer’s Chief Accounting Officer. The SEC faults the firm for failing to probe how close personal relationships could compromise independence. The audit firm is charged with falsely asserting its independence in public filings and with violating auditing standards. The SEC’s Director of Enforcement noted that these “are the first SEC enforcement actions for auditor independence failures due to close personal relationships between auditors and client personnel.”
OUR TAKE: This line of reasoning could also have an impact on other securities markets gatekeepers such as administrators and lawyers. If a service provider becomes too close to its clients, can the SEC more easily assert an aiding and abetting charge if the client engages in wrongdoing?