On September 29, 2023, the Securities and Trade Fee (SEC) introduced authorized fees in opposition to the worldwide accounting agency Prager Metis CPAs, LLC and its Californian counterpart, Prager Metis CPAs LLP (collectively known as Prager), for alleged violations of auditor independence guidelines and for supposedly aiding and abetting their shoppers in breaching federal securities legal guidelines. The complaints pointed to improper conduct over roughly three years, from December 2017 to October 2020, throughout which Prager was alleged to have included indemnification clauses in engagement letters for greater than 200 audit-related assignments, thereby compromising its independence as required by federal securities legal guidelines.
Prager’s alleged misconduct concerned repeatedly signing engagement letters with indemnification clauses and issuing “accountant’s studies” purporting independence, regardless of senior companions being notified that such actions jeopardized the agency’s independence. The SEC grievance means that a lot of Prager’s shoppers integrated these “accountant’s studies” of their SEC filings, and accuses Prager of not advising its shoppers about these violations even after being knowledgeable by the Public Firm Accounting Oversight Board (PCAOB) that such actions have been in violation of federal legal guidelines regarding auditor independence.
The SEC’s motion in opposition to Prager features extra significance contemplating the agency’s prior engagement with cryptocurrency alternate FTX earlier than the latter filed for Chapter 11 chapter in November 2022. Prager Metis offered audit and tax preparation providers to FTX, a notable engagement revealed in earlier courtroom paperwork. Though the SEC’s grievance didn’t particularly title FTX, it highlighted “lots of” of auditor independence violations over a span of practically three years.
The case underscores the stringent auditor independence framework that forestalls an auditor from offering extra providers which may pose a battle of curiosity. Eric I. Bustillo, Director of the SEC’s Miami Regional Workplace, emphasised the significance of auditor independence in safeguarding monetary reporting integrity and fostering public belief.
The SEC’s grievance seeks a everlasting injunction, disgorgement plus prejudgment curiosity, and a civil financial penalty in opposition to Prager, marking a stern reminder for auditing corporations concerning the crucial significance of adhering to federal legal guidelines and rules regarding auditor independence.
Moreover, the authorized scrutiny extends past Prager Metis. A latest submitting on September 21 revealed that the regulation agency Fenwick & West, which had earlier engagements with FTX, can also be underneath investigation. The plaintiffs argue that Fenwick & West needs to be held partially answerable for FTX’s downfall because of alleged over-extension in service choices to the alternate.