AAER No. 3428 is a report of an enforcement action against Deloitte & Touche (South Africa) in regards to violations of auditor independence and improper professional conduct. Certain names were not disclosed in this case and will be referred to as “Director” and “Company A.” The key players involved in this case are Deloitte & Touche South Africa (“DT-SA”), their wholly owned consulting affiliate Deloitte Consulting (Pty) Ltd. (“DC-SA”), DC-SA’s contracted consultant (“Director”) and DT-SA’s auditing client (“Company A”). In April, 2006, Director was hired by DC-SA as an independent consultant to provide assistance in the energy industry. There were no business conflicts until September 1st, 2007, when Director joined the board of directors of Company A. Because DC-SA is owned by DT-SA, Director’s employment with DC-SA became a prohibited business relationship that impaired auditor independence between DT-SA and their client, Company A. Because of an absence of controls in place for DC-SA, DT-SA was unaware of this prohibited relationship until August 11, 2008. After further review, Director’s employment was effectively terminated on September 30, 2008. DT-SA’s lack of internal controls and continued employment of Director for over a year caused them to violate auditor independence and engage in improper professional conduct. The particular rules that were violated in this case were rules 210.2-01 and 210.2-02(b) of Regulation S-X, Exchange Act Section 13, Exchange Act Section 4C and Rule 102(e) of the Commission’s Rules of Practice. Rule 210.2-01 of Regulation S-X states that the Commission will not recognize any public accountant as independent if they are indeed not independent. (“Regulation S-X”, 2002). During the period of time of September, 2007 to September, 2008, DC-SA extended the Director’s contract while he
