On April 15, 2020, the Securities and Exchange Commission (SEC) announced that it had filed a lawsuit against Prager Metis CPAs LLP, a New York-based accounting firm, for violations of auditor independence rules. According to the SEC’s complaint, Prager Metis failed to maintain its independence from its audit clients by providing non-audit services to them, including tax preparation and bookkeeping services.

The SEC’s complaint alleges that Prager Metis provided non-audit services to its audit clients without obtaining the required pre-approval from the audit committee of the audit client’s board of directors. The SEC also alleges that Prager Metis failed to properly document its pre-approval process and failed to maintain records of its non-audit services.

The SEC’s complaint further alleges that Prager Metis failed to properly evaluate the potential effects of providing non-audit services on its independence from its audit clients. The SEC claims that Prager Metis’s failure to properly evaluate the potential effects of providing non-audit services on its independence resulted in a violation of the auditor independence rules.

The SEC is seeking injunctive relief, disgorgement of ill-gotten gains, and civil penalties against Prager Metis. The SEC’s action is a reminder to all accounting firms that they must ensure that they maintain their independence from their audit clients and comply with all applicable auditor independence rules.

Auditor independence is essential for the reliability of financial statements and the protection of investors. The SEC’s action against Prager Metis serves as a reminder that all accounting firms must take steps to ensure that they are in compliance with auditor independence rules.