The US Securities and Exchange Commission has charged RSM US LLP with violations of the agency’s auditor independence rules in connection with more than 100 audit reports involving at least 15 audit clients.
According to the SEC’s order, RSM US repeatedly represented that it was ‘independent’ in audit reports issued on the clients’ financial statements, which were included or incorporated by reference in public filings with the Commission or provided to investors. Instead, the SEC found that RSM US or its associated entities, including other member firms of the RSM International network, provided non-audit services to, and had an employment relationship with, affiliates of RSM US audit clients, which violated the SEC’s auditor independence rules.
The prohibited non-audit services included corporate secretarial services, payment facilitation, payroll outsourcing, loaned staff, financial information system design or implementation, bookkeeping, internal audit outsourcing, and investment adviser services. The prohibited employment relationship concerned a partner at an RSMI member firm in Australia serving on a voluntary basis as a non-discretionary member of the board of an affiliate of a RSM US issuer audit client.
Certain of RSM US’s independence controls were also inadequate, resulting in the firm’s failure to identify and avoid these prohibited non-audit services and the prohibited employment relationship. These violations occurred between 2014 and 2015, with certain violations remaining undetected until at least 2016.
“The SEC’s auditor independence rules specifically prohibit audit firms from providing certain non-audit services,” said Carolyn M. Welshhans, Associate Director of the SEC’s Division of Enforcement. “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.”
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. The order also finds that RSM US engaged in improper professional conduct within the meaning of Rule 102(e) of the SEC’s Rules of Practice by virtue of its violations of the auditor independence requirements.
RSM US consented to the SEC’s order without admitting or denying the findings and was ordered to cease and desist from future violations. RSM US agreed to pay a $950,000 penalty and be censured. RSM US additionally agreed to engage an independent consultant to evaluate its current quality controls for complying with auditor independence requirements for non-audit services. In determining to accept RSM US’s offer of settlement, the SEC considered remedial acts undertaken by RSM US.