- Chief Compliance Officer and VP of Legal Affairs, Arrow Electronics
By 
Adrianne Appel2023-10-18T17:00:00
Audit firms should carefully weigh the pros and cons of indemnity clauses in light of the Securities and Exchange Commission’s (SEC) recent complaint against Prager Metis.
Last month, the SEC charged Prager Metis with violating independence requirements of federal securities laws on 62 audits, 11 examinations, and 144 reviews, largely because the firm included indemnification provisions in 87 client engagement letters. The agency’s complaint, filed in U.S. District Court for the Southern District of Florida, is just the latest example of its enforcement focus on auditor independence.
The prudent path for auditors is not to use indemnity clauses in any way whatsoever, said Frank Borger Gilligan, a member of the corporate, mergers and acquisitions, and securities practice group at law firm Dickinson Wright.
THIS IS MEMBERS-ONLY CONTENT. To continue reading, choose one of the options below.
News and analysis for the well-informed compliance or audit exec. Select an option and click continue.
Annual Membership $499 Value offer
Full price one year membership with auto-renewal.
Membership $599
One-year only, no auto-renewal.
The Public Company Accounting Oversight Board and Securities and Exchange Commission have emphasized in public statements auditor independence is a critical enforcement area, prompting the need for firms to reacquaint themselves with each agency’s requirements.
Accounting firm Prager Metis violated auditor independence rules through use of indemnification provisions in its engagement letters hundreds of times during a period of nearly three years, the Securities and Exchange Commission charged in a lawsuit.
The Securities and Exchange Commission is paying added scrutiny toward audit firms’ increasing use of network affiliates in their work and the potential for inconsistent quality that comes with such an approach.
Chinese authorities banned PwC’s Chinese unit from performing audits in the country for six months, labeling the subsidiary’s flawed audit work as complicit in the failure of giant property developer Evergrande.
Erica Williams was reappointed to a second term as chair of the Public Company Accounting Oversight Board after an ambitious first three years in the role that have seen the agency work to update many of its standards deemed outdated.
Software company Autodesk said it won’t restate several years of financial statements following an audit committee investigation into potential accounting misconduct.
