Deloitte & Touche Charged With Violating Auditor Independence Rules

The SEC announced on July 1, 2015 that Deloitte & Touche LLP (Deloitte) was charged by the SEC with violating auditor independence rules when its consulting affiliate, Deloitte Consulting LLP, maintained a business relationship with a trustee (Boynton) serving on the boards and audit committees of three funds it audited.

According to the SEC’s order instituting a settled administrative proceeding, Deloitte violated the rules with respect to the appearance of independence by failing to follow its own policies and conduct an independence consultation prior to entering into a new business relationship with Boynton.  Auditor independence rules require outside auditors to remain independent from their clients to ensure there is not even the appearance of a firm compromising its objectivity and impartiality when auditing financial statements.

As a result, Deloitte failed to discover that the required initial independence consultation was not performed until nearly five years after the independence-impairing relationship had been established by Deloitte Consulting LLP and Boynton, who was paid consulting fees for his external client work.  Meanwhile, Deloitte represented in audit reports that it was independent of the three funds while Boynton simultaneously served on their boards and audit committees.

The SEC’s order censures Deloitte for violating the auditor independence standards of Rule 2-02(b) of Regulation S-X, and sanctioned Deloitte for causing the funds to violate Sections 20(a) and 30(a) of the Investment Company Act and Rule 20a-1 thereunder.  Deloitte agreed to cease and desist from future violations without admitting or denying the findings and to pay disgorgement of audit fees in the amount of $497,438 plus prejudgment interest of $116,478 and a penalty of $500,000.

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