WASHINGTON, Oct 21 (Reuters) - California-based Toymaker Mattel Inc has agreed to pay $3.5 million to settle U.S. Securities and Exchange Commission (SEC) charges over financial misstatements in 2017, the agency said on Friday.

Mattel, which makes Barbie and Fisher-Price toys, incorrectly reported its losses during the third and fourth quarters of 2017 due to tax reporting errors, the SEC said. The issue went uncorrected until November 2019 and the lack of internal control for financial reporting related to the error remained undisclosed. The company's chief executive officer and the audit committee were not told of the error.

A spokesperson for Mattel, which did not admit or deny the SEC's findings, said the firm is pleased to have the matter behind it. Shares of Mattel fell 1% in extended trade on Friday.

The SEC said it is separately initiating litigation against a former audit partner at PricewaterhouseCoopers LLP to determine whether he engaged in improper professional conduct and violated auditor independence rules.

Auditor Joshua Abrahams failed to verify that the uncorrected $109 million error was documented, even though he knew about it, the SEC alleged. He further failed to maintain auditor independence by advising Mattel's then-chief financial officer about who should be selected for a senior position at the company.

A spokesperson for PWC declined to comment.

Thomas Zaccaro, an attorney for Abrahams, described the charges as "meritless" and said "he will vigorously contest these baseless allegations."

The matter will be scheduled for a public hearing before the Commission, the SEC said. (Reporting by Chris Prentice in Washington Editing by Aurora Ellis and Matthew Lewis)