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November 30, 2022

A Bunch of Auditors at RSM F*cked Up

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Today in Auditors Not Doing Their Jobs, the SEC has charged RSM, three senior-level employees who work there, and a couple partners with improper professional conduct for failing to properly audit Revolution Lighting Technologies Inc.’s financial statements over a four-year period when Revolution was violating accounting principles by inflating revenue with bill and hold sales.

From the SEC press release:

According to the SEC’s order, RSM’s planning and supervision of the audit, as well as the evaluation of audit results and review of Revolution’s disclosures, all failed to adhere to the Public Company Accounting Oversight Board’s auditing and quality control standards.

The SEC also charged RSM partners Steven Kirn and Richard Condon and senior audit manager Michael Piqueira for their roles in the improper audits. The SEC’s order against the three employees finds that Kirn, RSM’s lead partner on its Revolution audits, and Piqueira, the senior manager on those audits, failed to adequately plan, supervise, and execute the audits. Condon was charged with improperly reviewing and approving RSM’s analysis that inaccurately concluded Revolution’s errors and inflated revenue were immaterial to investors.

SEC Director of the Division of Enforcement Gurbir Grewal gave his usual quote about auditors having a job to do and how important they are, blah blah. “Auditors are important checks against fraud, and they should be scrutinizing arrangements like bill and hold sales,” he said. “RSM failed to do this at all levels, from the engagement team up through the firm’s national office. And by giving Revolution a pass, investors learned only too late that Revolution was committing a multi-year fraud.”

According to RSM’s latest PCAOB inspection report the firm is struggling. Just in general. With auditing. As in:

With respect to Cash:

To test cash at one of the issuer’s business units, the firm performed confirmation procedures for a sample of cash accounts. The firm did not maintain control over the confirmation requests because the issuer sent the requests. (AS 2310.28) In addition, for the majority of the items in its sample, the responses were returned by email. The firm did not perform substantive procedures that provided sufficient appropriate audit evidence to verify the source of these responses. (AS 2301.08)

Without admitting or denying the SEC’s findings, RSM agreed to pay a $3.75 million penalty, to be censured, and to retain an independent consultant to review and evaluate its audit, review, and quality control policies and procedures. Without admitting or denying the SEC’s findings, Kirn and Piqueira agreed to be suspended from appearing and practicing before the SEC as accountants, with the right to apply for reinstatement after three years and one year, respectively. In addition, without admitting or denying the SEC’s findings, Condon agreed to a censure. RSM, Kirn, and Piqueira also agreed to a cease-and-desist order.

SEC Charges Audit Firm RSM and Three Senior-Level Employees with Failure to Properly Conduct Client Audits [SEC]

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2 Comments

  1. Everyone gets to second guess the auditor. How about we second guess that schmucks that write this drivel?

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