The Securities and Exchange Commission (SEC) initiated 34 enforcement actions involving accounting or auditing allegations in 2021, a 32 percent drop from its 50 actions in 2020,
Accounting Today reported. Meanwhile, the Public Accounting Oversight Board (PCAOB) disclosed 18 audit-related enforcement actions last year—a 38 percent increase from 13 in 2020. The information comes from a
report by Cornerstone Research released on Wednesday.
The report found that there was a decrease in SEC enforcement activity for the third year in a row: There were 58 such enforcement actions In 2019. The numbers fluctuated in recent years. There were 74 actions in 2016, 43 in 2017, and 64 in 2018. Cornerstone Research senior vice president Elaine Harwood said that the recent decline was not surprising, but that a decline in the settlement amounts was. "The median settlement by firms in SEC enforcement matters was only $200,000, which means that half of the accounting and auditing cases that settled last year were for that amount or less," she said.
The total amount of SEC settlements was $158 million, $151 million of which were against firms. The total monetary settlements against individuals nearly doubled since 2020 to $7 million. The highest settlement was for $62 million, but that was well below the maximum settlement in either 2019, when it was $147 million or 2020, when it was slightly over $1 billion. In 11 of the 49 settlements, the SEC reported that it considered the respondent's self-reporting, cooperation, and/or remedial efforts as it set penalties and other remedies.
Accounting Today noted that both the SEC and the PCAOB had changes of leadership last year under the new Biden administration.
Gary Gensler took over as SEC chairman in April 2021. And
Erica Williams was sworn in as PCAOB chair this past January. Both are expected to toughen enforcement efforts at the two organizations.
Of the 34 SEC enforcement actions last year, 19 referred to announced restatements and five referred to announcements of material weaknesses in internal control over financial reporting. The two most common allegations, each involving one-third of the actions in total, pertained to a company’s revenue recognition and internal accounting control violations.
The percentage of SEC actions in 2021 referring to announced restatements and/or material weaknesses in internal control was significantly higher than the pre-pandemic average. Yet only 37 percent of the actions referring to restatements alleged improper revenue recognition, down from 83 percent the prior year.
While the level of PCAOB enforcement rose, it was still well below pre-pandemic levels. There were 43 in 2016, 45 in 2017, 19 in 2018 and 24 in 2019; Of the 15 individual and 11 firm respondents that settled with the PCAOB in 2021, monetary settlements were imposed on 18 of them (69 percent). Monetary settlements amounted to approximately $1.1 million.
"While PCAOB enforcement activity remained low overall in 2021, the 13 actions finalized in the third quarter equaled the total number of PCAOB actions in 2020 and could mark the start of an upswing in enforcement," said Alison Forman, a principal at Cornerstone Research, in a statement. "During a speech in December, Patrick Bryan, director of the PCAOB's Division of Enforcement and Investigations, stated that his division will ‘hit the ground running’ in 2022.”