ARTICLE
21 February 2019

Audit Firm And Former Personnel Settle SEC Charges Related To Auditor Independence Rules

CW
Cadwalader, Wickersham & Taft LLP

Contributor

Cadwalader, established in 1792, serves a diverse client base, including many of the world's leading financial institutions, funds and corporations. With offices in the United States and Europe, Cadwalader offers legal representation in antitrust, banking, corporate finance, corporate governance, executive compensation, financial restructuring, intellectual property, litigation, mergers and acquisitions, private equity, private wealth, real estate, regulation, securitization, structured finance, tax and white collar defense.
An audit firm based in Japan, its former CEO, and its former acting reputation and risk leader ("RRL") (collectively, the "Respondents") agreed to settle SEC charges for violating auditor independence rules.
United States Corporate/Commercial Law

An audit firm based in Japan, its former CEO, and its former acting reputation and risk leader ("RRL") (collectively, the "Respondents") agreed to settle SEC charges for violating auditor independence rules.

According to the SEC Order, the firm issued audit reports for a client when many employees kept bank accounts with the client's subsidiary. The firm violated the SEC auditor independence rules because the accounts had balances exceeding the amount insured by the Deposit Insurance Corporation of Japan. The SEC Order also found that the Respondents caused the audit client to violate reporting obligations, that the firm's system of quality controls "did not provide reasonable assurances that the firm and its auditors were independent from audit clients," and that Respondents engaged in improper professional conduct.

To settle the charges, the audit firm agreed to pay more than $2 million in financial penalties. The former CEO and RRL agreed to be suspended from appearing and practicing before the SEC as accountants, with the right to apply for reinstatement after 2 years.

Commentary / Kyle DeYoung

While some of the auditor independence rules—including the ones violated here—can seem trivial, violations of these rules have long been a priority of the SEC and will likely continue to be a focus going forward. Firms subject to the independence rules should make sure that they have adequate quality control systems in place to avoid these kind of violations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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