The Securities and Exchange Commission has charged the audit, tax, and consulting firm RSM US LLP (RSM) and three senior-level employees with improper professional conduct in connection with its audit work with the company Revolution Lighting Technologies Inc. (Revolution). The SEC order states that RSM and the employees failed to properly audit Revolution’s financial statements over a four-year period when the company was violating accounting principles by inflating revenue with bill and hold sales. 

According to the order, RSM failed to adhere to the Public Company Accounting Oversight Board’s auditing and quality control standards in connection with both planning and supervision of Revolution’s audit, as well as the evaluation of the results and review of the company’s disclosures.

In connection to the charges against RSM, the SEC has also charged company partners Steven Kirn and Richard Condon and senior audit manager Michael Piqueira for their roles in the improper audits with Revolution.

Multi-year fraud

The order finds that Kirn, RSM lead partner on the Revolution audits, and Piqueira, the senior manager on those audits, failed to adequately plan, supervise, and execute the audits. Condon has been charged with improperly reviewing and approving RSM’s analysis that inaccurately concluded that Revolution’s errors and inflated revenue were immaterial to investors. 

“Auditors are important checks against fraud, and they should be scrutinizing arrangements like bill and hold sales,” said Gurbir Grewal, Director of the Division of Enforcement.

“RSM failed to do this at all levels, from the engagement team up through the firm’s national office. And by giving Revolution a pass, investors learned only too late that Revolution was committing a multi-year fraud.”  

Without admitting or denying the SEC’s findings, RSM US LLP has agreed to pay a $3.75m penalty, including agreeing to be censured, and to retain an independent consultant which will review and evaluate audit, review, and quality control policies and procedures.

Kirn and Piqueira, without admitting or denying the findings, have agreed to be suspended from appearing and practicing before the SEC as accountants. They have the right to apply for reinstatement after three years and one year respectively. In addition, without admitting or denying the SEC’s findings, Condon agreed to a censure.

RSM, Kirn, and Piqueira have also agreed to a cease-and-desist order.