On June 8, 2022 the U.S. Securities and Exchange Commission (SEC) issued a press release blasting three CohnReznick partners with "improper professional conduct."
Per the press release:
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.
In the case of Sequential, the release notes, despite concerns from CohnReznick's national office, "The order finds that CohnReznick's deficient system of quality control led to failures to adhere to professional auditing standards."
In regard to the Longfin audit, "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 Longfin order asserted that on multiple occasions from year-end 2016 through Q2 2017, Wyss accepted Sequential management's word that goodwill was not impaired despite strong indicators of impairment - the partner did not conduct an investigation into the situation.
Furthermore, the order found that in Q3 2017, Wyss, Jackson, and Hilbert had sufficient evidence to conclude that Sequential's goodwill impairment test was comprised, but the trio did not push back against Sequential's conclusion that goodwill was not impaired even though necessary audit procedures were not performed.
In the SEC's release, Melissa Hodgman, Associate Director in the Division of Enforcement, stated, "Auditors are critical gatekeepers that must employ a robust system of quality control to ensure faithful adherence to professional standards."
Although not every CPA nationwide is as large as CohnReznick, this cautionary tale is a reminder that no one is above professional standards.
When working with business clients, it is imperative that you have a full understanding of proper auditing procedures and of what constitutes goodwill - this can include the value of a company's brand name, core customer base, customer satisfaction, employee morale, and various patents or proprietary technology.
What are your thoughts on the ongoing CohnReznick SEC sanctions?
About Rebekah Barton
Rebekah's search engine optimization career began completely by accident as a college student. Over the course of her career so far, she has "grown up" with the SEO industry, from writing content while juggling classes to managing her own teams of writers and overseeing SEO strategy in subsequent roles. She is excited to bring her passion for high-quality content to CountingWorks, Inc.
Outside of work, Rebekah can be found doing yoga, shopping, watching the Indianapolis Colts, or spending time with her two young daughters. A lifelong Disney and Star Wars fan, she alternates between wishing she lived in Beast's castle or was making the Kessel Run in the Millennium Falcon.
