Auditors are the Focus of SEC Scrutiny

On October 24, The Securities and Exchange Commission (“SEC”) sanctioned a south-Florida auditing firm for violating federal laws and regulations requiring lead audit partners to periodically rotate off their audit engagements with a publicly-traded company in order to preserve the integrity of the financial reporting process.

A thorough SEC investigation revealed that the lead auditor at Berman & Company (“Berman”), Elliot Berman, who is also a partner in the firm, attempted to perform audits for public companies for five consecutive fiscal years, which is a federal violation.

Furthermore, Mr. Berman is not a certified public accountant and is not qualified to conduct such an audit.  He “improperly continued to perform many of the lead audit partner functions for that audit.”

“When investors receive an audited financial statement, they have a right to expect that the audit was performed by a qualified and independent auditor,” said Paul Levenson, Director of the SEC’s Boston Regional Office.  “Berman attempted to subvert the independence rules by concocting a sham rotation and naming an unqualified employee of the firm to serve as token lead audit partner while he continued to pull the strings.”

This case is one of many similar cases termed by the SEC as Operation Broken Gate, an initiative that identifies auditors who neglect their obligation to adhere to professional standards.

Berman agreed to pay $15,000 in penalties and to cease providing accounting services for one year.

It is imperative for public companies to be aware of federal regulations governing auditors and to conduct due diligence to ensure that their auditors are adhering to such requirements.

For further information on this and other related subjects, please contact us at (619) 278-0020 to schedule a consultation.

GENERAL DISCLAIMER: Information contained within this blog does not create a business-client relationship, and none of the content of this blog can be deemed to be consultive business advice.


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