The PCAOB finalized only 13 enforcement actions against accountants in 2018 representing a 63 percent decline from the 35 actions in 2017, according to a new report from Cornerstone Research. The number of SEC enforcement actions against accountants in 2018 was 32, down 20 percent from the 40 in 2017.
Cornerstone noted in a news release that 2017 was the PCAOB’s most active year of enforcement against accountants, which the report defines as certified public accountants employed by SEC registrants, auditors, and audit firms in the U.S. Conversely, 2018’s tally was the lowest since 2013 and only about 40 percent of the 2015-2017 average of 32 actions.
The head of Cornerstone’s accounting practice said that the decline in enforcement actions against accountants at the PCAOB corresponded to significant changes in leadership at the board.
PCAOB actions. The report states that audits of brokers and dealers continued to represent a large percentage of PCAOB actions, accounting for 46 percent of the 2018 final actions. In 2018, 70 percent of final PCAOB actions involved both an audit firm and one or more auditors, up from the 2013–2017 average of 54 percent. The number of respondents in 2018 final PCAOB actions fell nearly 65 percent from its 2017 all-time high, according to Cornerstone.
The most common allegation in final PCAOB enforcement actions in 2018 involved engagement quality reviews. Specifically, more than two-thirds of the 2018 final actions involved this area. The report notes that nearly one in three final actions involved auditing of related party transactions, while only one action finalized in 2018 involved a financial statement restatement.
Cornerstone found that in addition to bars, suspensions, and other nonmonetary sanctions, the PCAOB imposed monetary penalties against over half of respondents in 2018. Total monetary settlements against individual accountants were $25,000, and monetary settlements against audit firms totaled $660,000.
SEC actions. The report states that final SEC enforcement actions involving accountants have declined in each of the past three years. Cornerstone attributed the 2018 decline to a significant decrease in final actions involving CPAs employed by SEC registrants. In 2018, only 16 final actions involved CPAs employed by SEC registrants, the lowest level in the past six years, according to the report.
In 2018, three out of four final SEC actions involved only individuals, consistent with the 2013–2017 average, Cornerstone found. The total number of respondents (both individuals and firms) in SEC actions finalized in 2018 was 44, well below the 2013–2017 average of 57 respondents.
Cornerstone found that common allegations in final SEC enforcement actions involving accountants included insider trading and engagement quality reviews. The report states that about one-third of the SEC actions were connected to a financial restatement in 2018, and about 10 percent of the actions involving individuals included insider trading allegations. Nearly half of the actions involving auditors or audit firms in 2018 were related to engagement quality reviews, while more than one-third of the actions alleged violations related to auditing of related party transactions.
In addition to bars, suspensions, and other nonmonetary sanctions, the SEC imposed monetary penalties against nearly half of respondents in 2018. The report states that total monetary settlements against individual accountants were less than $600,000, and total monetary settlements against audit firms were approximately $2 million.
State follow-on actions. The report also states that the majority of SEC and PCAOB actions finalized in the 2013-2017 timeframe resulted in a state follow-on action against at least one individual or firm respondent. While the majority of state follow-on actions are completed within two years of a final SEC or PCAOB action, according to Cornerstone, one in four takes longer than two years to complete.
In 2018, three out of four final SEC actions involved only individuals, consistent with the 2013–2017 average, Cornerstone found. The total number of respondents (both individuals and firms) in SEC actions finalized in 2018 was 44, well below the 2013–2017 average of 57 respondents.
Cornerstone found that common allegations in final SEC enforcement actions involving accountants included insider trading and engagement quality reviews. The report states that about one-third of the SEC actions were connected to a financial restatement in 2018, and about 10 percent of the actions involving individuals included insider trading allegations. Nearly half of the actions involving auditors or audit firms in 2018 were related to engagement quality reviews, while more than one-third of the actions alleged violations related to auditing of related party transactions.
In addition to bars, suspensions, and other nonmonetary sanctions, the SEC imposed monetary penalties against nearly half of respondents in 2018. The report states that total monetary settlements against individual accountants were less than $600,000, and total monetary settlements against audit firms were approximately $2 million.
State follow-on actions. The report also states that the majority of SEC and PCAOB actions finalized in the 2013-2017 timeframe resulted in a state follow-on action against at least one individual or firm respondent. While the majority of state follow-on actions are completed within two years of a final SEC or PCAOB action, according to Cornerstone, one in four takes longer than two years to complete.