RSM US fined by SEC for violating auditor independence rules

RSM fined $950k for independence breach

Accounting firm RSM US has been fined $950,000 by the Securities and Exchange Commission (SEC) for violating the auditor independence rules.

RSM US, a member firm of the RSM International (RSMI) network with more than 80 offices across the country, was judged to have violated the strict rules when carrying out more than 100 audits for 15 audit clients between 2014 and 2015.

The auditor independence rules prohibit certain employment relationships between an audit firm and its audit client and the provision of certain non-audit services, such as payroll processing and investment adviser or investment banking services.

According to an SEC’s order, RSM US repeatedly represented itself as “independent” in audit reports issued on the clients’ financial statements.

However, deficiencies in RSM US’s quality controls resulted in the firm’s failure to identify and avoid prohibited non-audit services and a prohibited employment relationship.

The prohibited services included corporate secretarial services, payment facilitation, payroll outsourcing, providing loaned staff, financial information system design or implementation, bookkeeping, and investment adviser services.

In each instance, the audit teams were unaware of the prohibited services or relationship – although the violations remained undetected until at least 2016, according to SEC.

The audit clients impacted included funds of eight investment advisers seeking to comply with the Custody Rule, the employee benefit plans of three public companies, two broker-dealers, and two public companies. 

The Custody Rule requires advisers with custody of client assets to take steps to safeguard those assets. Therefore, having the financial statements of its funds audited by an independent public accountant is crucial.

 “The SEC’s auditor independence rules specifically prohibit audit firms from providing certain non-audit services,” Carolyn Welshhans, associate director of the SEC’s division of enforcement said. 

“Audit firms must put in place procedures, training, and systems that provide a reasonable assurance of independence, and they must monitor for independence on an ongoing basis,” Welshhans added

“The SEC’s order finds that RSM US violated the auditor independence provisions of the federal securities laws and caused the audit clients to violate their obligations to have their financial statements audited by independent public accountants.”

RSM US consented to the SEC’s order without admitting or denying the findings and was ordered to cease and desist from future violations, SEC said.

It also agreed to pay the $950,000 penalty and be censured, and will engage an independent consultant to evaluate its current quality controls.

Last Updated: 1 September 2019
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