The Securities and Exchange Commission has censured accounting firm Cohn Renick and ordered it to pay a $1.9-million civil money penalty. The actions stem from what the SEC said were deficiencies in the firm’s quality controls that led to audit issues with two companies in 2017.In a consent settlement, CohnReznick agreed to hire an independent consultant to review its audit, review and quality control over the next two years.
The SEC said the CohnReznick’s improper professional conducted included lapses “that were identified by national office quality control reviewers but were not appropriately addressed by the engagement teams.” The results were misstated financial statements filed by the SEC for Sequential Brands 2017 third quarter review and 2017 annual audits of both Sequential and Longfin Corp.
Issues with Sequential included methods for measure impairment of goodwill and what the firm’s Managing Partner of Assurance noted at the time were “troubling facts” in Sequential’s impairment analysis but eventually overrode internal valuation specialist’s doubts about managements claims about its analytical process. Eventually, the engagement team left the assigned EQCR partner out of consultation with the assurance partner and finalized the third-quarter earnings release before the EQCR partner complete revenue or give input.
The SEC outlined a broad list of failures in the Longfin audit. That included not properly addressing risks associated with material weaknesses in Longfin’s Internal Control over Financial Reporting; “its precarious financial position; the nature of Longfin’s purported commodity sales, which occurred on the high seas, could not be physically verified, and lacked reliable documentation; and Longfin’s practice of entering into transactions in which related parties were involved in both sides of the purchase and sale of commodities.”
As with the Sequential audit, the EQCR reviewer cited critical matters to be addressed, in this case listing 18 issues in a March 30, 2018 email to the engagement and EQR partners. The SEC said CohnReznick failed to follow up on all issues “and the EQCR did not take adequate steps to follow up with the engagement team.”
