March 9, 2022

SEC Enforcement: Accounting Actions Declined in 2021

According to this recent Cornerstone Research report, SEC & PCAOB accounting and auditing enforcement actions and monetary sanctions declined sharply in 2021. Here’s an excerpt with some of the specifics:

– The total number of accounting and auditing actions initiated by the SEC declined 32% from 50 in 2020 to 34 in 2021. This was a 41% decrease from the average number of 58 initiated actions during the 2016–2020 period and well below the number of actions initiated in each of the prior five years.

– The decline in the number of initiated accounting and auditing actions in the first year of the new administration (a decline of 16 actions, 32% lower than the number of actions in 2020) was smaller than the decline in the number of actions in 2017, the first year of the prior SEC administration (a decline of 31 actions, 42% lower than the number of actions in 2016).

– For the first time since 2016, the SEC initiated all accounting and auditing enforcement actions in 2021 as administrative proceedings.

– The two most common allegations in 2021 SEC actions related to a company’s revenue recognition and violations of internal accounting control over financial reporting. Each of these violations was alleged in about one-third of the total actions.

– In 2021, the SEC initiated two actions under the new Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (ASC 606), which provides guidance for recognizing revenue for certain types of sales agreements.

While the number of accounting & auditing enforcement actions declined compared to the prior year, 2021 was a transitional year. SEC Chair Gary Gensler didn’t arrive until mid-April, and Enforcement Director Gurbir Greewal wasn’t appointed until June. The report says that enforcement activity ramped up significantly after their arrival and outpaced the enforcement activity during the early months of the prior administration under then-Chair Jay Clayton.

John Jenkins