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 analyzed by Audit Analytics and key data points are extracted.
The SEC issued 98 AAERs in 2019, 3 releases above the average 95 releases issued each year between 2012 and 2019. Of all AAERs since 2000, 31% were issued in third quarters, while only 20% were issued in fourth quarters. In 2019, 45% of AAERs were issued in the first half of the year and 55% were issued in the second half. For AAER data for the first half of the year, see Accounting and Auditing Enforcement Releases (AAERs): Q1 and Q2 of 2019.
In Q3 2019, the SEC released 42 AAERs – 6 less AAERs than in Q3 2018, but a greater than average amount compared to the average number of releases issued in third quarters over the past ten years. Despite the overall decrease in the number of AAERs issued in all third quarters since 2004, the past two years have shown an increase in the number of releases in third quarters. In 2019, 43% of AAERs were issued in Q3.
In Q4 2019, the SEC released 12 AAERs, the lowest amount ever released in a fourth quarter. The number of releases in Q4 is below the average of 22 AAERs released in fourth quarters from 2010-2019. For 2019, 12% of releases were issued in the fourth quarter.
The overall average number of AAERs issued per year since 2000 is 141 releases, while the average from 2012 to 2019 is only 95 releases per year. Although the average number of releases per year has gone down, 2019 holds the third highest yearly median, $199,125, since the SEC began issuing AAERs.
The past three years have seen higher average annual penalties when compared to the years prior. Between 2007 and 2016, the average individual monetary penalty each year was less than $10 million. In 2017, 2018, and 2019, however, the averages were $10.8 million, $28.6 million, and $11.8 million, respectively.
In the second half of 2019, 38 respondents were ordered to pay monetary penalties, of which 20 were individuals, 14 were entities, and 2 were audit firms. All respondents in 2019 were ordered to pay a total of over $670 million in disgorgement, prejudgment interest, and civil penalties.
In Q3 and Q4 2019, the SEC barred 24 respondents from appearing or practicing before the Commission as accountants and granted reinstatement for 6 respondents. Additionally, 6 individuals were also barred or prohibited from acting as officers or directors of a registered issuer, including for periods of 5, 8, and 10 years.
In the second half of 2019, 38% of all unique respondents were entities and 62% were individuals. One-third of all respondents in the period were audit firms, audit partners/engagement team members or sole proprietors/owners.
Of all respondents in the second half of 2019, 8% were audit firms and 30% were public companies and other entities.
The majority of AAERs in Q3 and Q4 relate to financial and accounting records, false and misleading statements, internal controls, improper professional conduct and audit deficiencies. In this period, 35 releases included orders pursuant to various sections of the Securities Exchange Act of 1934 and 23 included orders pursuant to Rule 102(e) of the Commission’s Rules of Practice.
The highest monetary penalties for the year were in the first and second quarter of 2019. The top highest monetary penalties in the second half of 2019 include:
- 3 penalties for violations of the Foreign Corrupt Practices Act (FCPA), totaling over $71.6 million – involving Juniper Networks, Inc., Deutsche Bank AG, and a senior executive from the Goldman Sachs Group, Inc.;
- a penalty of $30 million for accounting failures by Mylan N.V. for overcharging Medicaid for EpiPen; and
- a penalty of $15 million for Nissan Motor Co., Ltd., relating to undisclosed compensation paid to its former Chairman and CEO.
An extended version of this article was first available through Accounting Quality Insights powered by Audit Analytics, found on Bloomberg, Refinitiv Eikon, FactSet, and S&P Global.
For more information about the Audit Analytics AAERs database or to request the full analysis, please contact us.
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.