Accounting and Auditing Enforcement Activity Declines Slightly in 2019
Los Angeles—The U.S. Securities and Exchange Commission (SEC) and the Public Company Accounting Oversight Board (PCAOB) publicly disclosed a combined 81 accounting and auditing enforcement actions during 2019, down slightly from the previous year, according to a Cornerstone Research report released today. Monetary settlements totaled approximately $628 million, $626 million of which was imposed by the SEC.
Cornerstone Research’s report, Accounting and Auditing Enforcement Activity—2019 Review and Analysis, examines publicly disclosed SEC and PCAOB enforcement actions that involve accounting and auditing. The most common allegations in 2019 SEC actions involved financial reporting issues, with revenue recognition violations comprising the largest share. The percentage of PCAOB actions involving revenue recognition increased in 2019.
The SEC and PCAOB have highlighted revenue recognition as one of the areas that may present challenges as a result of the economic impact of COVID-19.
Enforcement actions involving announcements of restatements or internal control weaknesses increased by 65%. The percentage of 2019 SEC actions involving announced restatements and/or material weaknesses in internal controls (42%) was nearly double the 2018 percentage (23%).
In 2019, the SEC initiated 57 enforcement actions involving accounting and auditing allegations, an 11% decline from the 64 actions in 2018, but near the 2014–2018 average. The SEC brought only 5% of accounting and auditing actions as civil actions, the lowest percentage since 2016.
The PCAOB publicly disclosed 24 auditing-related enforcement actions in 2019, up 26% compared to 2018, the year in which the PCAOB disclosed its lowest number of actions since 2014.
The percentage of SEC and PCAOB actions involving non-U.S. respondents declined, but remained above the 2014–2018 average.
At 115, the total number of respondents in 2019 SEC and PCAOB actions was 23% below the 2014–2018 average.
The SEC and PCAOB imposed monetary penalties against 84% of firms and 63% of individual respondents. The median penalty the SEC imposed on firms in 2019 was $4.1 million, nearly three times greater than the 2018 median.