Audit Conduct

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RSM US sanctioned for independence violations involving audit client affiliates

On August 27th, the Securities and Exchange Commission (SEC) published an order sanctioning RSM US for violating independence standards related to nonaudit services and employment with respect to affiliates of several of the firm's audit clients. The clients in question included: eight (8) registered investment advisers subject to the "custody rule"; two (2) public company issuers; three (3) Form 11K benefit plan filers; and two (2) broker-dealers.

As noted in the SEC's press release: "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.  As detailed in the SEC’s order, 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."

RSM US consented to the SEC’s order without admitting or denying the findings and was ordered to cease and desist from future violations. The firm agreed to a $950,000 penalty, a censure and to engage an independent consultant to evaluate its current quality controls relating to educating and monitoring for compliance by its personnel with the independence requirements under PCAOB standards and SEC rules that prohibit the performance of certain non-audit services by the firm or its associated entities to RSM US audit clients or their affiliates

The SEC considered remedial acts undertaken by RSM to improve their quality controls in determining to accept RSM's offer of settlement. The firm implemented several measures to enhance its policies, procedures, systems and training since the time periods in which these violations occurred, including: 

  • increased training of both audit and nonaudit professionals on SEC independence rules, including targeted training for certain industry group and nonaudit professionals;
  • disciplined employees who fail to proactively identify independence violations;
  • increased existing client acceptance and continuance procedures, including redundant query and search requirements;
  • increased personnel in the firm's national independence group;
  • implemented an enhanced risk assessment program, including additional independence-related inquiries; and
  • established a conflicts check team.