Big Four in Accounting Face SEC Investigation BY DAVE MICHAELS December, SEC Enforcement Director Gurbir Grewal said: WASHINGTON-Regula. You will see that we will have tors are carrying out a sweep firm commitment moving ing Investigation of conflicts forward to continue to target of interest at the nation's larg. deficient auditing by auditors est accounting firms, asking auditor independence cases, whether consulting and other cases around earningsman nonandit services they sell agement." dermine thelr ability to con The SECS Miami office sent duct independent reviews of letters last year seeking infor public companies' financials, mation about client work that according to people familiar could cause miditors to violate with the matter. rules requiring they be inde The Securities and Expendent of ellents whose 11 change Commission probenances they inspect, necording highlights the agency's new to the people. focus on financial market They said the letters were gatekeepers such as accounsent to some smaller tants, bankers and lawyers, accounting firms as well as These firms help companies the Big Fourt Deloitte & ralse capital and communicate Touche LLP Ernst & Young with shareholders, but also LLP, KPMG LLP, and Pricewa have duties under federal in- terhouseCoopers LLP. vestor protection Inws. Audi Spokesmen for the SEC, tors are a shareholder's first KPMG and PwC declined to line of defense against sloppy comment. A spokeswoman for or dodgy accounting Ernst & Young and a spokes Speaking at a national con man for Deloitte didn't re- ference of auditors in Please turn to page 2 in the current investiga cases in which andit firms ob client design software that tion, the SEC has asked audit tained contracts that relm was part of its accounting firms to discose instances to burse them for losses caused compliance systems. The ar regulators in which the firms by lawsuits over their work rangement violated audit-in provided services such as or made fees contingent on a dependence rules because it consulting, tax advice, and particular result or outcome, put PwC in the position of lobbying to audit clients, ac they said. potentially auditing its own cording to the people familiar Pwc paid almost $8 mil project-management func- with the matter. The SEC also lion in 2019 to settle Sections, according to an SEO asked for information on any claims that it helped an audit settlement order. spond to requests to comment. The Big Four audit 66% of all public companies with a market capitalization over $75 million, according to Audit Analytics. All four have paid fines to the SEC since 2014 to settle prior registory investi- gations of audit independence violations. SEC rules prohibit account ing firms from doing other work for an audit client that could Impair their objectivity and impartiality as auditors. Companies pay audit firms to test their accounting and then issue an opinion stating whether shareholders can rely on the financial numbers and systems designed to reduce the risk of fraud or error. Public companies disclose audit and nonsedit fees in their annual proxy statements About 47 companies in the S&P 500 Index paid significant nonaudit fees to firms hired to test their accounting practices, according to Audit Analytics The analysis defined signif lcance as nonaudit fees that constituted more than 25% of total fees pald to the account Ing firm. Regulators alleged that a PwC accountant handled the negotiations for the software work at the same time he worked on the dient's annual audit. PwC settled the case without admitting or denying the SEC allegations, while the accountant paid a $25,000 fine and agreed to be us pended from auditing public- company financial statements for four years. Ernst & Young has twice in the past seven years settled SEC investigations alleging it violated Independence rules. In 2014, regulators accused the firm of lobbying congres sional staff on behalf of two audit clients. An Ernst & Young subsidiary sent letters signed by an executive of an audit client to lawmakers' staff and directly lobbled for a bill that would help the business of an audit client, the SEC alleged Ernst & Young paid $4 mil- lion to settle the SEC claims without admitting or denying wrongdoing KPMG paid $8.2 million in 2014 to settle an SEC investi- gation that alleged it pro vided prohibited nonaudit services such as bookkeeping to affiliates of companies whose books it audited. Deloitte & Touche paid $11 million in 2015 to settle an SEC enforcement action claiming audit Independence violations. Both firms settled without admitting or denying misconduct Questions: 1. Briefly summarize the article. 4. What are some of the services offered by major accounting firms? 5. Select one publicly traded company. Which firm audited that company? What did the auditor's opinion state