March 23, 2022
SEC Investigating “Non-Audit Services”
Our “Audit Fees” Handbook notes that shareholders tend to question auditor independence if a company’s proxy statement indicates that fees paid for non-audit services are more than 20-30% of the total fees received by the independent auditor. According to this scoop from WSJ reporter Dave Michaels, the SEC is also looking into that:
Regulators are carrying out a sweeping investigation of conflicts of interest at the nation’s largest accounting firms, asking whether consulting and other nonaudit services they sell undermine their ability to conduct independent reviews of public companies’ financials, according to people familiar with the matter.
The Securities and Exchange Commission probe highlights the agency’s new focus on financial-market gatekeepers such as accountants, bankers and lawyers. These firms help companies raise capital and communicate with shareholders, but also have duties under federal investor-protection laws. Auditors are a shareholder’s first line of defense against sloppy or dodgy accounting.
This write-up from Francine McKenna provides even more context and notes that it’s somewhat surprising that the SEC’s Miami office appears to be leading this inquiry. But, the investigation certainly aligns with recent statements out of Washington from the SEC’s Acting Chief Accountant.
What does this mean for companies? Well, this is definitely not a new issue. But the extra attention may mean that audit committees need to start exercising even more scrutiny over fees for non-audit services. It’s never a great look for a company to have to defend the independence of its auditor.
– Liz Dunshee