The number of SEC and PCAOB accounting and auditing enforcement actions decreased in 2020 relative to 2019, but monetary settlements increased year-over year, according to a recent report from Cornerstone Research. The report, entitled “Accounting and Auditing Enforcement Activity – 2020 Review and Analysis” (here), analyzes the agencies’ publicly disclosed accounting and auditing enforcement actions between 2015 and 2020. Cornerstone Research’s April 27, 2021 press release about the report can be found here.
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Financial Scandals Involve Ernst & Young Audit Clients
Two of the biggest corporate scandals this year involved German payments company Wirecard AG and Chinese retail coffee company Luckin Coffee. These two companies have one other thing in common beyond their recent involvement in high profile accounting scandals – it turns out that both companies’ auditor was Ernst & Young, as was the case with several other companies involved in recent scandals. As discussed in an October 17, 2020 Wall Street Journal article entitled “String of Companies That Imploded Have Something in Common: Ernst & Young Audited Them” (here), a number of EY audit clients have faced financial issues in recent months, raising questions whether there is something about EY’s audit approach that contributed to the problems or allowed the problems to happen.
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Concerns About “Going Concern”
As the pandemic has unfolded, a recession has followed in its wake, as a result of which many companies are struggling. Some will not survive – a number of high profile companies, such as Hertz and Neiman Marcus, have already filed for bankruptcy. Many others have issued financial filings containing a “going concern” disclosure or received an audit opinion with a going concern modification. The government shutdowns and other disruptions that have followed in the wake of the coronavirus outbreak have placed an enormous burden on many businesses. The going concern disclosures filed in the year’s first half reveal how many companies are struggling to stay afloat and what might be in store in the months ahead.
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