Finalized actions by the U.S. Securities and Exchange Commission and the Public Company Accounting Oversight Board involving accountants declined slightly to 75 in 2017 from 79 in the previous year. According to a new report by Cornerstone Research, however, there were notable differences in the actions finalized by the SEC and PCAOB.
The first-of-its-kind report, Regulatory Actions Involving Accountants, shows that the number of finalized SEC actions against auditors and audit firms in 2017 was only half of the 2016 total, while increased actions against auditors and audit firms of brokers and dealers drove PCAOB enforcement to its highest level.
Overall, the SEC finalized a total of 40 enforcement actions involving accountants (CPAs employed by SEC registrants, auditors, and audit firms) in 2017, a decline of more than 20 percent from the 51 finalized actions in 2016. The SEC finalized only 13 actions related to the performance of audits of issuers and brokers and dealers compared to 26 in each of the previous two years—a primary reason for the overall decline in 2017.
The PCAOB finalized 35 actions in 2017, up from 28 in the previous year and the highest level in its history. The rise was in large part due to increased actions against auditors and audit firms of brokers and dealers. The PCAOB has disciplinary authority over auditors and audit firms and the performance of audits as a result of the passage of the Sarbanes-Oxley Act of 2002.
"For accountants, resolving an SEC or PCAOB action is typically not the end of the story," said Elaine Harwood, a Cornerstone Research vice president and head of the firm's accounting practice. "In the states we studied, the majority of SEC and PCAOB actions led to a state follow-on action, despite the fact that an accountant did not admit to the charges and even when the accountant's license was inactive."
The majority of SEC and PCAOB actions finalized in 2012–2016 resulted in a follow-on enforcement action by a state board of accountancy in the top six states. Of the 174 SEC and PCAOB enforcement actions finalized in 2012–2016, 93 resulted in state follow-on actions. Enforcement actions involving accountants can sometimes take up to six years when there is a state follow-on action. Auditors and audit firms are more likely to be subject to a state follow-on action than non-auditor CPAs.
About Cornerstone Research
Cornerstone Research provides economic and financial consulting and expert testimony in all phases of complex litigation and regulatory proceedings. The firm works with an extensive network of prominent faculty and industry practitioners to identify the best-qualified expert for each assignment. Cornerstone Research has earned a reputation for consistent high quality and effectiveness by delivering rigorous, state-of-the-art analysis for over 25 years. Named one of the Best Workplaces by Inc. Magazine, the firm has 700 staff and offices in Boston, Chicago, London, Los Angeles, New York, San Francisco, Silicon Valley, and Washington.
Please visit Cornerstone Research's website for more information about the firm's capabilities in economic and financial consulting and expert testimony.
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