An accounting firm was fined and barred from any engagement arising from an SEC rule because it violated independence rules by auditing funds and firms for which it also prepared financial statements. The SEC charges that the accounting firm prepared financials including preparing draft statements for management review, converting from cash to GAAP accounting, proposing accounting adjustments, and drafting notes. Regulation S-X prohibits a firm that provides bookkeeping or other accounting services from auditing the same financial statements. According to the SEC, the firm wrongly applied AICPA independence rules rather than Regulation S-X, which applies to private fund and broker-dealer audits. The SEC charges the firm with causing its clients violations of the securities laws.
OUR TAKE: Performing audits of registered advisers, broker-dealer, or public companies involves a thorough understanding of the applicable securities laws and accounting standards. Accounting firms should not undertake engagements without retaining a compli-pro that can help navigate the regulatory waters. Advisers and broker-dealers should not retain a firm that lacks a track record of practicing in this area.