SOX Issue?/or not.. 1851

  • Hi…I think this forum is great for a clarifying many SOX related issues. hoping for some insight into this one…
    My company is interested in employing someone for a junior management position in Finance- Tax accounting, not in a financial oversight role (though that could be debated, or perhaps become an issue later). The person is currently emplyed by our external auditor, but she has not been assigned in any way with the company. The issue, if there is one , is that she is married to the head of the External Auditor’s Audit Department - he is not the one conducting our audit nor does he sign off, nonetheless, he heads the department that conducts our audits. Apart from the messiness of the issue and considering that the person has proven to be the best candidate by far, is there a SOX issue/Auditor independence issue? If yes, are there any controls that could be implemented i.e. a clause in the employment contract, approval of circumstance by the Audit Committee? I am simply hoping that there is something that can be done from our side, as if there is an issue with the External auditor, then there is nothing we can do.
    Comments, thoughts, suggestions will be most appreciated.

  • You may need to check the auditor’s obligations under your national Corporate Laws. in some locations, if her husband is a partner of that department, this would result in the External Auditors being obliged to resign.

  • EMM gives some good advice on this issue. While something like this case isn’t specifically written up in SOX, it wise to consider controls and have both Human Resources and your own Audit department look for any issues.
    Personally, I see no issues as most likely both are top-notch professionals and good ethical folks as well. Also, external auditors provide a service and review process, and it’s more up to the company itself to control SOX related financial workflows and IT exposures. Finally, both individuals have more of indirect rather than direct influence in the SOX evaluation process.
    I’ve also seen married couples work well in our own company in various job roles. I hope this works out, as good qualified people are hard to find.
    Good luck 🙂

  • Not a SOX issue but is a potential ethics issue - although potentially a bigger one for the audit firm. Ordinarily I would expect to see the individual flag their potential conflict of interest and that should be about it really.

  • Hi,
    As stated earlier, the hiring of the individual is not specifically addressed in the SOX compliance requirements.
    The external audit firm will likely present this situation for consideration by the Auditor’s Independence Committee to determine the ramifications and existence of a potential independence violation due to the relationship between the auditor/audit client, employee/spouse, and related job positions (Accounting/Audit Partner).
    If an independence violation is created due to the hiring of an employee in a Finance/Accounting capacity who is also the spouse of the audit firm’s management (partner), it is probably irrelevant that the partner is or is not the partner responsible for the audit client. The relevant criteria is that the spouse is a partner in the audit firm and the company is an audit client for whom the auditor provides attestation services.
    Perhaps, you can hire the partner AND the spouse…it sounds like both are quite capable and then, you face a different issue…nepotism.
    Kidding, but in all seriousness, in my opinion, I do not think that this situation will be considered favorably by the audit firm regardless of implementing any ‘compensating’ controls. Good lucik.
    Hope this further helps,

  • Thank you all for your very helpful comments.
    My initial fears confirmed. I guess if we decide to make an offer, the ball will be in their court - then again, knowing this could be a sticky situation which we would not want with our Auditors really… perhaps we should start the recruitment process all over…
    Again, many thanks.

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