Attention FAE Customers:
Please be aware that NASBA credits are awarded based on whether the events are webcast or in-person, as well as on the number of CPE credits.
Please check the event registration page to see if NASBA credits are being awarded for the programs you select.

Report: SEC Increased Accounting and Auditing Enforcement Actions in FY 2022

S.J. Steinhardt
Published Date:
Apr 28, 2023

The number of accounting and auditing enforcement actions initiated by the Securities and Exchange Commission (SEC) in fiscal year 2022 increased by more 55 percent from fiscal year 2021, but remained below pre-pandemic levels, a new report by economic and consulting firm Cornerstone Research found.

The SEC publicly disclosed 68 accounting and auditing enforcement actions in fiscal year  2022. Of those, 51 were administrative proceedings, and 17 were civil actions, the highest number of the latter since fiscal year 2019.

Despite those increased enforcement actions, the year’s monetary settlements were down by more than 60 percent from fiscal  2021, at $625 million, and were 44 percent lower than the average of total monetary settlements in the prior five fiscal years, according the report from. Total monetary settlements dropped due, in part, to the absence of any very large settlements, such as those over $1 billion.

The most common allegations in actions initiated in fiscal year 2022 related to a company’s revenue recognition and internal control over financial reporting. One or both violations were alleged in 63 percent of fiscal year 2022 actions, the report found.

Nine actions alleged violations of the “clawback” provision under Section 304 of the Sarbanes-Oxley Act, triple the number of such actions the year before.

"Accounting and auditing enforcement activity increased sharply, making up 15 percent of the 462 new or 'stand-alone' actions initiated by the SEC in FY 2022," said Elaine Harwood, a report co-author, senior vice president, and head of the accounting practice at Cornerstone Research, in a statement. "However, it was surprising to see such a marked decline in monetary settlements—not only in relation to total monetary settlements in the past few years, but also in relation to the SEC's record $6.4 billion in total penalties and disgorgement in FY 2022."

The SEC has been using data analytics to help uncover fraud and smoothing of the earnings per share that companies report to investors as part of what it calls the Earnings per Share (EPS) Initiative, Accounting Today reported.

"The SEC is pretty proud of its data analytics capabilities in-house to be able to identify companies that are worth investigating," Brad Wilson, managing partner and CEO of the global advisory firm StoneTurn, told Accounting Today. "Their efforts around earnings management recently, specifically what they call their EPS Initiative, is a good example of driving toward that, where they're looking for companies that seem to be potentially manipulating their earnings based on the fact that they get just to the right EPS target, or they're always rounding up and never rounding down."

The Public Company Accounting Oversight Board (PCAOB) also increased its enforcement activity significantly in 2022, a February report by Cornerstone Research found.

Click here to see more of the latest news from the NYSSCPA.