Regulators hitting auditors hard in 2024
Aug. 26, 2024
Both the number of enforcement actions and monetary sanctions surged in the first half of this year.
Attention to auditors of public companies: Stay on your toes.
After new administrations took the reins of the Public Company Accounting Oversight Board (PCAOB) in 2022 and the SEC in 2021, enforcement actions against auditors burgeoned over the next two years to a level not seen for some time.
But that was nothing compared to the scorching pace set in the first half of this year, when the two watchdog agencies initiated enforcement actions against a combined 37 registrants, according to a new report by consulting firm The Brattle Group.
In the full years of 2022 and 2023, the corresponding numbers were 59 and 60 actions, respectively. Those levels appear likely to be well exceeded by the end of 2024.
The PCAOB accounted for the bulk of this year’s activity, having initiated 34 of the 37 actions. The Securities and Exchange Commission initiated the other three.
The board brought more actions in the first half of 2024 than it did in each of the full years in the regulator’s prior administration (2018-2021). The report also disclosed monetary sanctions on auditors as a result of enforcement actions, for settled or otherwise finalized cases that were initiated either this year or earlier. The PCAOB and SEC imposed a combined nearly $49 million in sanctions on auditors in this year’s first half — more than the combined full-year penalties in four of the last six years.
They also imposed $35 million of that total, including a single $25 million mega-settlement with KPMG Netherlands in April. The SEC imposed severe monetary sanctions in the only two actions it settled in the first half, totaling $14 million. That was more than the $11.5 million the SEC imposed in all of 2023.
In the big KPMG Netherlands case, the PCAOB alleged that the firm “violated quality control standards related to integrity and personnel management by failing to establish appropriate policies and procedures associated with internal training tests,” Brattle Group reported.
In May, the SEC imposed a collective $14 million in penalties and imposed permanent bars on auditing firm BF Borgers and its 100% managing partner and owner, Benjamin Borgers, for their alleged “sham audit mill.”
The report detailed that, among other allegations, Borgers instructed staff to copy workpapers from previous engagements as the final workpapers for new engagements.
Borgers’ largest client was Trump Media & Technology Group, the owner of the Truth Social social media platform owned by Donald Trump, who fired the accounting firm after the SEC deemed them a “massive fraud.”
[CFO.com]
