SEC Charges Friedman LLP for Improper Professional Conduct in Its Audit of Two Public Companies
Sept. 23, 2022
File No. 3-21142
September 23, 2022 - The Securities and Exchange Commission today charged accounting firm Friedman LLP with improper professional conduct for failing to comply with the standards of the Public Company Accounting Oversight Board while conducting audits of two public companies from 2017 through 2020. Friedman has agreed to settle the charges and will pay approximately $1.5 million in total monetary relief.
According to the SEC's order, in its audit of iFresh, Inc. for fiscal years 2017 through 2020, Friedman failed to design and perform audit procedures that would have detected numerous undisclosed related party transactions by iFresh. The SEC previously charged iFresh with repeatedly filing materially inaccurate financial statements that failed to fully disclose related party transactions, specifically alleging that iFresh engaged in undisclosed transactions with entities that were either controlled by the CEO of iFresh or owned by the CEO's brother. The SEC's order today finds that Friedman did not exercise professional skepticism during its review of the work papers and failed to recognize red flags that indicated undisclosed related parties. Friedman also failed to obtain sufficient appropriate audit evidence, respond to fraud risks, and perform procedures to identify related party transactions during its audits of iFresh.
In its audits of another public issuer, according to the SEC's order, Friedman did not exercise professional skepticism and due professional care and failed to obtain sufficient appropriate audit evidence in connection with multiple transactions and relationships it encountered during its audit of that company. Friedman also failed to properly audit related party transactions made by that company. In addition, the SEC's order finds that Friedman failed to design, implement, and monitor an adequate system of quality control, and that it failed to adopt and implement adequate policies and procedures regarding audit documentation.
The order against Friedman finds that it engaged in improper professional conduct within the meaning of Section 4C(a)(2) of the Securities Exchange Act of 1934 and Rule 102(e) of the SEC's Rules of Practice, and violated Section 10A(a)(2) of the Exchange Act and Rule 2-02(b)(1) of Regulation S-X. Without admitting or denying the SEC's findings, Friedman agreed to be censured, implement undertakings concerning the training of its staff, and pay disgorgement of $524,138, pre-judgment interest of $40,574, and a monetary penalty of $1,000,000.
The SEC's investigation was conducted by Ruta G. Dudenas, Ann Tushaus, Ariella Guardi, and Amy S. Cotter of the Chicago Regional Office, and Matthew J. Alexander, Brian S. Kang, Jeffrey Anderson, Juan Migone, Peter J. Rosario, and Kevin Guerrero of the Home Office. The investigation was supervised by Paul A. Montoya of the Chicago Regional Office and Stacy L. Bogert of the Home Office.