An extended version of this article was first available to subscribers of Accounting Quality Insights by Audit Analytics on Bloomberg, Refinitiv Eikon, FactSet, and S&P Global.
The Securities and Exchange Commission (SEC) provides a list of certain enforcement actions related to financial reporting concerning administrative proceedings and civil lawsuits. These Accounting and Auditing Enforcement Releases (AAERs) are reviewed by Audit Analytics and key data points are extracted.
In January 2019, Audit Analytics released its first post analyzing the SEC’s Accounting and Auditing Enforcement Releases (AAERs). Since then, the SEC issued 39 AAERs in the first two quarters of 2019, almost a record low compared to the number of releases issued in the first half of prior years.
In Q1 2019, the number of enforcement releases issued was the second lowest of all first quarters, tied with 16 releases in Q1 2018. At this rate, we can expect another year with an overall lower than average number of AAERs issued by the SEC. Although, historically the SEC has released the most AAERs in the third quarter; it will be interesting to see if the trend continues this year.
In Q2 2019, the number of releases increased to 23; however, the increase from Q1 to Q2 may be attributed to the government shutdown in Q1 2019, which lasted until January 25, 2019.
On average, the SEC has issued just over 140 AAERs per year between 2000 and 2018, but the number of AAERs issued each year has been well below this threshold since 2012; the average number of AAERs per year between 2012 and 2018 is significantly lower at 94 releases.
While the Commission continues to issue AAERs in lower quantities, the amount of monetary penalties ordered seems to be on the rise. The total amount of monetary penalties ordered in the first half of 2019 is already more than two-thirds of the average amount of yearly total penalties.
Most respondents ordered to pay a monetary penalty by the Commission were entities, however, there were 17 individuals that faced penalties in the first two quarters of 2019, totaling almost $474 million. Worth noting, the average penalty for individuals was less than 1% of the average penalty for entities.
The average individual penalty for a single respondent in Q1 and Q2 of 2019 is about $27.9 million, while the median is just over $150,000. Joint and several payments for 10 respondents in the period reached more than $570,000.
In the first half of 2019, almost 40% percent of all respondents were entities and 60% were individuals. Almost half of all respondents were audit firms, audit partners/engagement team members, or sole proprietor/owners.
There were a similar number of company respondents in the period compared to audit firm respondents, together comprising almost 40% of all respondents.
The majority of AAERs in Q1 2019 and Q2 2019 relate to financial and accounting records, false and misleading statements, internal controls, improper professional conduct and audit deficiencies.2
While not the most frequently cited issue so far this year, some of the highest monetary penalties each year involve violations of the Foreign Corrupt Practices Act (FCPA). So far in 2019, the top three highest monetary penalties were related to violations of the FCPA:
- In March 2019, Fresenius Medical Care AG & Co. [FMS] was ordered to pay $147 million, one of the top 20 highest penalties since 2000
- In June 2019, Walmart Inc. [WMT] was ordered to pay $144.7 million, one of the top 20 highest penalties since 2000
- In March 2019, Mobile TeleSystems PJSC [MBT] was ordered to pay $100 million
For a full list of penalties in Q1 2019 and Q2 2019, please contact us.
For more information about the Audit Analytics AAERs database or to request the full analysis, please contact us at (508) 476-7007 or at info@auditanalytics.com.
Audit Analytics, through its Accounting Quality Insights (AQI), offers alerts for AAERs as well as an in-depth AAER newsletter providing updates, historical trends, and analysis every six months.
1. Data is based on the list of AAERs made available by the SEC on their website ↩
2. A single release may involve more than rule or section of law, respondent, issue, and order, and the SEC may issue more than one order for a single respondent in a given release.↩