On Friday, the Securities and Exchange Commission (SEC) announced via press release that, toymaker Mattel has agreed to settle the charges against them regarding misstatements about their third and fourth quarters in their 2017 financial statements by paying $3.5 million.
The SEC’s order specifies that Mattel, in 2017, understated the tax-related valuation allowance pertaining to the third quarter by $109 million and consequently overstated the tax expense for the fourth quarter by the same amount of money. There were also over and understatements regarding Mattel’s net loss and net loss per share.
The SEC order alleges that neither Mattel’s CEO nor audit committee were aware of the illegal financial errors.
Alka N. Patel, Associate Director of the Los Angeles Regional Office is quoted, “An auditor’s adherence to professional standards and independence is critical to preserving investors’ trust in a company’s financial statements. Auditors who advise their clients on who to hire will have an interest in the success of such hires and could therefore be less critical of their effectiveness, all of which undermines the auditor’s independence.”
The SEC’s order found that Mattel violated the negligence-based antifraud provisions and the reporting, books and records, and internal controls provisions of the securities laws. Mattel agreed to a cease-and-desist order and to pay a $3.5 million civil penalty without admitting or denying these charges. The SEC’s order notes that the Commission took into account the company’s cooperation with the SEC’s investigation and its remediation in determining to accept Mattel’s settlement offer.