This press release from the SEC is wayyyy too boring to be rewritten in an interesting way on a sunny Friday afternoon so have some copy paste instead:
The Securities and Exchange Commission today charged audit firm CohnReznick LLP with improper professional conduct on engagements for two clients in 2017. The two clients, Sequential Brands Group, Inc. and Longfin Corp., previously were charged by the SEC for filing fraudulent financial statements prior to their bankruptcies and Nasdaq delisting. The Commission also charged firm partners Stephen M. Wyss, Stephen H. Jackson, and Robert G. Hilbert with improper professional conduct for violating numerous professional standards in their third quarter 2017 interim review and 2017 annual audit of Sequential’s financial statements. All respondents have agreed to settle charges and pay penalties. CohnReznick’s $1.9 million penalty will be returned to investors.
According to the SEC’s order, CohnReznick improperly accepted Sequential’s conclusion that its goodwill, an accounting term for the excess amount paid to acquire a company over its book value, was not impaired or reduced in value, in the third quarter of 2017. Despite CohnReznick’s national office partners and the firm’s own valuation specialists expressing concerns with Sequential’s conclusion, the firm failed to obtain sufficient evidence or conduct additional procedures. The order finds that CohnReznick’s deficient system of quality control led to failures to adhere to professional auditing standards. As to the Longfin audit, the order finds that CohnReznick and its national office failed to address known issues involving related party transactions, which were used by Longfin to fraudulently inflate its revenues.
A second related order finds that on multiple occasions from year-end 2016 through the second quarter of 2017, Wyss accepted Sequential management’s assertions that goodwill was not impaired despite strong indicators of impairment. The order also finds that in the third quarter of 2017, Wyss, Jackson, and Hilbert were confronted with indications that Sequential’s goodwill impairment test was not supported by sufficient evidence, but they still accepted Sequential’s conclusion that goodwill was not impaired even though appropriate additional audit procedures had not been performed.
Lemme do some rudimentary journalism here quick. Who? SEC, CohnReznick, partners Stephen M. Wyss, Stephen H. Jackson, and Robert G. Hilbert. What? Improper professional conduct on engagements for two clients. Where? Uh, SEC headquarters in Washington I guess? When? Audits in 2017; charges June 8, 2022. Why? Because bad auditors are bad.
“Auditors are critical gatekeepers that must employ a robust system of quality control to ensure faithful adherence to professional standards,” said Melissa Hodgman, Associate Director in the Division of Enforcement. “CohnReznick’s deficient system and repeated failures to exercise due professional care at all levels, from the engagement team up through the firm’s national office, not only allowed but were a cause of both Sequential’s and Longfin’s disclosure violations.”
Suck it CohnReznick, git gud.
In addition to the firm paying $1.9 million to investors of the naughty clients, Wyss and Jackson will pay civil penalties of $30,000 and $20,000, respectively, and not appear or practice before the SEC as an accountant with the right to apply for reinstatement after three years and one year, respectively. Without admitting or denying the SEC’s findings, Hilbert agreed to pay a civil penalty of $30,000 and a censure. All respondents also agreed to a cease-and-desist order.
CohnReznick will undergo an independent review of its audit control policies and procedures as well as abide by certain unnamed restrictions on retaining new audit clients during the consultant’s review.
