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SEC Intensifies Accounting Audits in 2023

Report | Feb 29, 2024

Cornerstone Research SEC Accounting and Auditing Enforcement Activity - SEC Intensifies Accounting Audits in 2023

Sharp increase in SEC enforcement on accounting practices in FY 2023

The Securities and Exchange Commission (SEC) significantly stepped up its enforcement actions concerning accounting and auditing in the fiscal year 2023, as detailed in a recent report by Cornerstone Research as pointed out by at The D&O Dairy This marked increase, particularly pronounced in the fiscal year's final quarter, highlights the SEC's reinforced efforts to ensure financial transparency and uphold regulatory standards. With a 22% rise in accounting and auditing enforcement actions.

  • The SEC initiated 83 accounting and auditing enforcement actions in FY 2023, a 22% increase from 68 actions in FY 2022. This represents the highest annual number of such actions since FY 2019, emphasizing a renewed regulatory emphasis on accounting standards and auditing integrity.
  • Of the 83 actions, 71 (86%) were administrative proceedings, an increase from 75% in FY 2022. This indicates a preference for internal regulatory processes over civil court actions, with the SEC bringing 12 civil actions in FY 2023, down from 17 in the previous year.
  • Among the individual respondents, 24% were CEOs, and 22% were CFOs. This highlights the SEC's focus on holding top corporate executives accountable for financial oversight. Approximately one-third of individual respondents were Certified Public Accountants, being scrutinized on professional ethics and responsibilities in financial reporting.

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  • The SEC initiated 11 actions against non-U.S. respondents, up from 5 in FY 2022. Actions involved respondents from Canada, the Netherlands, Ireland, the UK, Singapore, and more, indicating the global reach of SEC's enforcement efforts.
  • Despite the increase in enforcement actions, aggregate monetary settlements in these cases decreased by 7% to $583 million in FY 2023. Civil penalties constituted 33% of the total settlements, with the remainder attributed to disgorgement and prejudgment interest, highlighting the financial repercussions of non-compliance.

Why It Matters

The SEC's ramped-up enforcement actions in accounting and auditing during FY 2023 signal a clear directive towards enhanced financial accuracy and ethical auditing practices. For fintech executives, investors, and stakeholders, understanding and adapting to these regulatory dynamics is crucial for ensuring sustainable business practices and fostering a transparent financial environment.

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