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The SEC recently announced a settled enforcement action against Lordstown Motors arising out of the company’s alleged misstatements concerning the sales prospects for the company’s electric vehicles.  At the same time, it also settled a companion proceeding involving the company’s former auditor, in which the SEC alleged that the auditor violated independence standards. Here’s an excerpt from the SEC’s press release:

The SEC also instituted a related, settled administrative proceeding against Lordstown’s former auditor, Clark Schaefer Hackett and Co. (CSH). CSH provided certain non-audit services, including bookkeeping and financial statement services, to Lordstown during CSH’s audit of the company’s financial statements when it was a private entity. CSH then audited the same financial statements in connection with Lordstown’s merger with the SPAC and thus violated auditor independence standards of the SEC and the Public Company Accounting Oversight Board. Without admitting or denying the SEC’s findings, CSH agreed to a censure, a cease-and-desist order, the payment of more than $80,000 in civil penalties, disgorgement, and interest, and certain undertakings to improve its policies and procedures.

Bass Berry’s blog on this proceeding notes that it serves as a reminder that the SEC is focused on enforcing the auditor independence requirements set forth Rule 2-01 of Reg S-X. The blog reviews the audit committee pre-approval requirements for permitted non-audit services and the list of prohibited non-audit services, and offers some suggestions on best practices that audit committees should consider adopting to ensure compliance with the rule’s requirements.

– John Jenkins