Largely as a result of an influx of new actions in the fiscal fourth quarter, new SEC accounting and auditing enforcement actions increased in FY 2023 (which ended September 30, 2023) according to a new Cornerstone Research report. The number of new accounting and auditing enforcement actions increased by 22% in FY 2023, compared to the 8% increase in the overall number of enforcement actions during the fiscal year. While the number of accounting and auditing enforcement actions increased in FY 2023, aggregate monetary settlements in accounting and enforcement actions decreased 7% during the fiscal year.

The February 28, 2024, Cornerstone Research report, entitled “SEC Accounting and Auditing Enforcement Activity,” can be found here. Cornerstone Research report’s February 28, 2024, press release about the report can be found here.

According to the report, the SEC initiated 83 accounting and auditing enforcement actions in FY 2023, representing a 22% increase over the 68 actions filed in FY 2022, and greater than the average annual number of accounting and auditing enforcement actions filed during the period FY 2018-FY 2022 (66). The 83 accounting and auditing enforcement actions is the highest annual number of actions initiated since FY 2019. The 22% increase in accounting and auditing enforcement actions during FY 2023 outpaced the 8% increase in overall number of new enforcement actions brought by the SEC in FY 2023.

Over half of the FY 2023 accounting and auditing enforcement actions (44) were initiated in the fiscal year’s fourth quarter. 23 of the actions were initiated in September alone; the actions initiated in September presented 28% of the fiscal year total. The 44 actions initiated in 4Q FY 2023 was the highest quarterly total number of actions in any quarter during the period FY 2019-FY 2023.

Of the 83 accounting and auditing enforcement action brought in FY 2023, 71 (86%) were brought as administrative proceedings, up from 75% in FY 2022. The SEC also brought 12 accounting and auditing enforcement civil actions in FY 2023, down from 17 in FY 2022.

Or the 83 accounting and auditing enforcement actions initiated in FY 2023, 35 involved individual respondents only, while another 14 involved both individual and firm respondents. Of the individuals named as respondents, 14 (24%) held the title CEO, 13 (22%) held the title of CFO, and 14 (24%) held the title of auditor. Of the 45 individual respondents associated with SEC registrants, 17 were members of the board of directors, 12 of whom were also CEOs. About one-third of individual respondents (20) were Certified Public Accountants.

During FY 2023, the SEC initiated 11 accounting and auditing enforcement actions against non-U.S. respondents, up from the 5 such actions in FY 2022 and higher than the average number of actions per year against non-U.S. respondents during the period FY 2018-FY 2022. During FY 2023, the SEC brought actions involving respondents in Canada, the Netherlands, Ireland, the United Kingdom, Singapore, and Canada. Since FY 2018, the SEC has brought 57 accounting and auditing enforcement actions involving non-U.S. respondents. The most non-U.S. actions were brought against respondents in Canada (nine), The United Kingdom (seven), Japan (five), and Germany (five).

Of the 83 accounting and auditing enforcement actions initiated in FY 2023, 35 referred to announced restatements of financial statements, and 32 referred to announcements of material weaknesses in internal controls. Some of the actions referred both to restatements or announcements of control weaknesses; the total number of actions that referred to either a restatement or a control weakness was 41, the highest number in recent years. Of the 35 actions referring to restatements in FY 2023, 17 (49%) alleged improper revenue recognition.

119 respondents settled accounting and auditing enforcement action in FY 2023, up from 90 in FY 2022. Even though the SEC reported $4.9 billion in total monetary settlements in FY 2023, the monetary settlements in accounting and auditing enforcement actions totaled $583 million, representing a 7% decrease over the $635 million in accounting and auditing enforcement action settlements in FY 2022 and 47% lower than the annual average total monetary settlements during the five-year period FY 2018-Fy 2022. Civil penalties accounted for 33% the total accounting and auditing enforcement action settlements in FY 2023, while disgorgement and prejudgment interest accounted for 67%.

Monetary settlements in accounting and auditing enforcement actions involving individuals totaled approximately $50 million. The median monetary settlement for individual respondents in accounting and auditing enforcement actions in FY 2023 was $75,000, higher than both the $63,000 median in FY 2022 and the $53,000 median in the period FY 2018-FY 2022. Of the 68 individual respondents who settled accounting and auditing enforcement actions in FY 2023, 34 (50%) were prohibited form acting as an officer or director and/or denied the privilege of appearing or practicing before the SEC, down from 62% of the individual respondents who settled in FY 2022.

The SEC acknowledged that 26% of the respondents (29 firms and two individual) of the 119 respondents who settled accounting and auditing enforcement actions in FY 2023 offered cooperation, undertook remedial efforts, and/or self-reported to the SEC, up from 24% in FY 2022. Cooperation, remedial efforts, or self-reporting by seven respondents resulted in no monetary settlements. The SEC also did not impose any non-monetary sanctions on five of these seven respondents.

Of the 119 respondents that settled accounting and auditing enforcement actions in FY 2023, 101 paid monetary settlements, while 18 resolved their actions without the imposition of a monetary settlement.