BF Borgers Fallout Is a Big Wakeup Call for Audit Committees

Coverage of BF Borgers CPA PC’s collapse hasn’t prompted much discussion about why so many public registrants hired the firm to perform audit services. This raises questions about whether audit committees are fulfilling their fiduciary and legal obligations to the best of their ability.

BF Borgers, which counted former President Donald Trump’s social media company as an audit client, made national news after the Securities and Exchange Commission announced civil fraud charges against the firm and its owner. BF Borgers and founder Benjamin Borgers paid $14 million to settle the SEC charges and were permanently banned from performing public company work.

The Securities Exchange Act of 1934 stipulates that audit committees “must be directly responsible for the appointment, compensation, retention and oversight of the work of any registered public accounting firm engaged” to work on auditing measures. The law fits easily into a series of questions. Who hires the audit firm? To whom does the audit firm report? Who has oversight of the audit firm? The answer to all three is the audit committee.

This structure is essential to the audit function’s independence and strengthens the quality of a registrant’s financial reporting. The law removes management from the auditor selection and oversight process. Auditors should never view management as their client relationship, as management’s financial statement assertions are what they must evaluate and challenge.

The law doesn’t provide instructions or guidance on the auditor selection process or expected cost for audit services. But if cost is a limiting factor for the audit committee’s selection of a competent audit firm, that elevates the risk of a compromised audit. Engaging the lowest-cost auditor appears inconsistent with displaying the proper respect to show the value of audit functions.

The audit committees that hired BF Borgers—and had legal responsibilities to fulfill when doing so—so far seemed to have avoided scrutiny.It would be interesting to know what criteria the audit committees applied when engaging BF Borgers as auditors and whether paying as little as possible was a top priority—little enough to render the entire audit function meaningless.

Another question would be how the clients and audit committees found BF Borgers. Audit firms often secure clients based on reputation, so which aspect of BF Borgers’ reputation caused clients to solicit its services? It’s already law to protect the public markets from risky situations; the structure fails if audit committees don’t fulfill their obligations.

This should be a wake-up call for audit committees that hire, or allow to be hired, firms that may not respect the value of an audit for the shareholders relying on the audit opinion. Investors deserve quality audits, and audit committees are responsible under the law to ensure that happens.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Joseph Floyd is partner and co-founder of Floyd Advisory, a consulting firm in Boston and New York City that provides financial and accounting expertise.

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