Unregistered Auditors Busted by SEC

The commission raps 69 audit firms and partners for not signing up with the Public Company Accounting Oversight Board.
Sarah JohnsonSeptember 13, 2007

The Securities and Exchange Commission has charged 37 unregistered audit firms and 32 audit partners with violating the Sarbanes-Oxley Act. The auditors had opined on the financial statements of public companies allegedly without registering with the Public Company Accounting Oversight Board, the nongovernmental organization created out of Sarbox to oversee auditors.

Of the firms charged, 28 have settled with the SEC without admitting or denying that they had audited public companies while not registered with the PCAOB. They also gave up their fees collected for the work in question and were censured by the SEC. However, nine firms have not settled. In those cases, an administrative law judge will determine whether the SEC’s allegations are true and whether the auditors’ right to practice as accountants should be revoked.

In total, the 69 unregistered auditors had issued 60 audit reports for 53 companies between November 2003 and October 2005, according to the SEC’s press release, which gives
a list of the companies charged
. They are all small size firms that issued between one and eight audit reports during the relevant time period. Most of the clients mentioned in the SEC’s complaints were listed on the OTC Bulletin Board or the Pink Sheets.

Drive Business Strategy and Growth

Drive Business Strategy and Growth

Learn how NetSuite Financial Management allows you to quickly and easily model what-if scenarios and generate reports.

Under Sarbox, all auditors and accounting firms that prepare and issue audited reports for public companies must register with the oversight board. “When these auditors failed to register with the PCAOB, they violated one of the key requirements of Sarbanes-Oxley and evaded the PCAOB’s oversight authority,” said Linda Chatman Thomsen, director of the SEC’s Enforcement Division.

The firms and individuals that agreed to settle the SEC charges were ordered to cease and desist from violating the Sarbox registration provision. The accused partners can continue to practice as long as their firms are registered with the PCAOB and if they have sent the SEC’s Office of the Chief Accountant the PCAOB’s letter giving its approval for registration.

During the SEC’s investigation, 26 of the settling firms voluntarily returned their client’s audit fees, which ranged from $100 to $32,000. Some of the accused hadn’t charged their clients for their audit work at all. The SEC ordered two of the firms to disgorge the fees that were not reimbursed, which means the firms had to return the fees plus pay interest.

4 Powerful Communication Strategies for Your Next Board Meeting