SEC Whistleblower Attorney Matt Stock Quoted About Auditor Independence
Compliance Week article quoted SEC whistleblower attorney Matt Stock in an article titled “Audit committees need to dig into personal relationships.” Matthew Stock, a former external auditor highlighted the impact that independence violations can have on external audit firms and issuers. In addition, he noted that audit committees must judge the significance of these relationships through the lens of whether a reasonable investor would consider them important when making investment decisions:
“In some respects, the audit committee in such situations is a bit hostage to the determinations of the audit firm with respect to its ability to remain independent. “The audit committee is poorly suited to do these kinds of analyses of what’s appropriate activity and what’s over the line,” says Matthew Stock, an attorney with Zuckerman Law. “The burden is really on the external audit firm to maintain its independence, but this can have a huge impact on the company.”
In the article, Stocks recommend that audit committees take a more proactive position with respect to policing the relationships between auditors and company personnel, and recommends that audit committees ask for information about the relationships, “viewing the details through the lens of whether a reasonable investor would consider any of it important when making investment decisions.”
Auditor Independence SEC Whistleblower Lawyers
Under federal securities law, auditors of public companies must be independent of their clients both in fact and in appearance. Rule 2-01(b) of Regulation S-X provides:
The [SEC] will not recognize an accountant as independent, with respect to an audit client, if the accountant is not, or a reasonable investor with knowledge of all relevant facts and circumstances would conclude that the accountant is not, capable of exercising objective and impartial judgment on all issues encompassed within the accountant’s engagement.
Typically, independence cases arise from inappropriate financial or employment relationships between an auditor and a client. Recently, however, the SEC has targeted independence violations that stem from “inappropriate close personal relationships” between auditors and clients, including romantic relationships and excessive socializing.
Disclosures About Auditor Independence Violations May Qualify for a SEC Whistleblower Award
We have represented whistleblowers before the SEC and PCAOB, including accountants and auditors disclosing audit deficiencies. To learn more about the SEC Whistleblower Reward Program, download our free guide SEC Whistleblower Program: Tips from SEC Whistleblower Attorneys to Maximize an SEC Whistleblower Award.
We also represent auditors and accountants that have suffered retaliation for raising concerns internally or to regulators about violations of federal securities laws. To learn more about corporate whistleblower protections, download our free guide Sarbanes-Oxley Whistleblower Protection: Robust Protection for Corporate Whistleblowers.