SEC Fines One of the ‘Big Four’ Accounting Firms $2M

(CN) – The Securities Exchange Commission on Wednesday hit one of the biggest accounting and professional services firms in the world with a $2 million fine for operating with a conflict of interest.

According to the SEC, dozens of Deloitte Touche Tohmatsu LLC employees held bank accounts with a financial subsidiary of the client Deloitte was auditing.

“Auditor independence is critical to the integrity of the financial reporting process,” Melissa Hodgman, Associate Director of the SEC’s Division of Enforcement, said. “The auditor independence rules addressing bank account balances that exceed deposit insurance limits are clear, and audit firms must devote adequate resources to ensuring the independence of the firm and its personnel.”

Auditors are not considered independent if they maintain bank accounts with their clients with balances that exceed FDIC or similar depository insurance limits, according to the SEC.

Deloitte Japan knew that its former CEO Futomichi Amano – along with about 88 other employees – maintained bank accounts with the audit client’s subsidiary bank but failed to disclose it.

The SEC also found that Deloitte’s system of quality controls did not provide reasonable assurance that the firm was financially independent from audit clients.

It held Amano and the firm’s former director of independence Yuji Itagaki culpable for the infractions and reached settlements with both of them.

Deloitte must pay $2 million in sanctions.

Amano and Itagaki agreed to a suspension of their ability to practice before the SEC as accountants, which also bars them from participating in the financial reporting or audits of public companies. The SEC’s order permits Amano and Itagaki to apply for reinstatement after two years and one year, respectively.

The SEC did not disclose the identity of the client involved.

Deloitte Japan is one of the “Big Four” accounting firms, widely regarded as the largest professional services network in the world based on revenue and number of employees.  

A phone call to Deloitte Japan was not returned by press time.

James Bresnicky and Sarah Lamoree conducted the SEC’s investigation under the supervision of J. Lee Buck II and Ms. Hodgman.

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