According to a new report from Cornerstone Research, the number of accounting and auditing enforcement actions the SEC initiated in 2019 was down slightly from the number initiated in 2018, but the number remained near the 2014-2018 average. Monetary settlements of accounting and auditing enforcement actions during 2019 totaled approximately $626 million. The June 25, 2020 report, which also summarizes accounting and auditing enforcement activity initiated by the PCAOB, is entitled “Accounting and Auditing Enforcement Activity – 2019 Review and Analysis” and can be found here. Cornerstone Research’s June 25, 2020 press release about the report can be found here.
According to the report, in 2019, the SEC initiated 57 accounting and auditing enforcement actions, down compared to 64 in 2018, but about even with the 2014-2018 annual average of 59. Of the 57 actions initiated in 2019, only three were initiated as civil actions, while the remaining 54 were filed as administrative actions. The 5% of all auditing and accounting enforcement actions brought as civil actions during 2019 represents the lowest percentage since 2016. All but three of the actions brought by the SEC in 2019 were settled the day they were publicly announced.
The 2019 auditing and accounting enforcement actions involved a total of 75 respondents, down from a total of 97 respondents in 2018. Of the 75 respondents in the 2019 actions, 42 were SEC registrants or related individuals (compared to 66 in 2018); 29 were auditors of issuers; and 4 were auditors of broker-dealers.
The percentage of auditing and accounting enforcement actions involving companies domiciled outside the U.S. decline in 2019 compared to the year before. Ten of the 2019 actions involved non-U.S. respondents, compared to 14 in 2018. 60% of the actions involving non-U.S. respondents involved allegations relating to internal controls over financial reporting (e.g., alleged violations of the FCPA).
42% of 2019 SEC auditing and accounting enforcement actions involving either restatements or material weaknesses of internal controls (or both), compared to only 23% in 2018, and compared to a 2014-2018 annual average of 33%. Of actions involving restatements in 2019, nearly half involved allegations related to revenue recognition.
The total value of settlements of auditing and accounting enforcement actions the SEC announced in 2019 was $626 million, of which $5 million was against individuals and $621 was against firms. With respect to individuals, the average amount was about $208,000 and the median amount almost $39,000. With respect to firms, the average amount was about $20 million and the median amount was about $4.1 million.