August 11, 2020

Volume X, Number 224

August 10, 2020

Subscribe to Latest Legal News and Analysis

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%).

Highlights

  • 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.

 Read Accounting and Auditing Enforcement Activity—2019 Review and Analysis.

Copyright ©2020 Cornerstone ResearchNational Law Review, Volume X, Number 178

TRENDING LEGAL ANALYSIS


About this Author

Elaine M. Harwood, Vice President, Accounting Practice, Cornerstone Research
Vice President

Elaine Harwood heads the firm’s accounting practice. She consults to clients and works with experts on securities litigation, complex enforcement matters brought by the Securities and Exchange Commission (SEC) and Public Company Accounting Oversight Board (PCAOB), and corporate investigations. She is an expert on financial accounting, financial reporting, and auditing. Dr. Harwood has served for more than fifteen years as a consultant and expert on a wide range of liability and damages issues.

 

Securities litigation...

213-553-2553
Alison Forman Financial and Cornerstone Research
Principal

Alison Forman has more than seventeen years of experience consulting on financial accounting, financial reporting, and auditing issues arising in complex litigation, regulatory enforcement, and corporate investigations. She also has experience in matters involving general damages, antitrust, and securities fraud for companies in a wide range of industries. She has worked with testifying experts and has consulted with attorneys in all phases of litigation, including mediation and trial.

Accounting and Auditor Liability

Ms. Forman has advised counsel and worked with testifying experts to address a wide variety of Generally Accepted Accounting Principles (GAAP) compliance issues. She has addressed revenue recognition, fair value measurements, asset impairments, derivatives, contingent liabilities, discontinued operations, and transfers of financial assets. Ms. Forman has prepared pro forma financial statements, assessed materiality, and evaluated the adequacy of disclosures contained in Securities and Exchange Commission (SEC) filings. She has directed research in prominent securities class actions, including In re Williams Securities Litigation and In re Omnicom Securities Litigation.

Ms. Forman’s expertise includes evaluating whether audit and review procedures complied with Generally Accepted Auditing Standards (GAAS) and Public Company Accounting Oversight Board (PCAOB) standards. She has addressed a range of auditor liability issues in the context of litigation, and matters involving state boards of accountancy, the SEC, and the PCAOB. Issues addressed include the responsibilities of management and auditors; the nature, scope, and purpose of an audit or quarterly review; the planning and execution of financial statement audits; the effectiveness of audits of internal controls over financial reporting; auditors’ responsibilities regarding fraud; and required communications with management and the board.

Financial Institutions

Ms. Forman also has extensive experience in financial institutions matters including those involving mortgage-backed securities (MBS), banks and thrifts, subprime lenders, credit card issuers, and life insurance companies. She has addressed many issues, including:

  • Lost profit damages;
  • The impact of the credit crisis on a bank’s loan portfolio;
  • Lending practices, including loan structuring, loan monitoring, due diligence,  and managing problem loans;
  • Loan loss allowances; and
  • Representations and warranties related to MBS offerings.
312.345.7324