Assurance provided by independent public company auditors creates a foundation of trust in American capital markets. The auditing profession remains focused on continuous improvement to audit quality that benefits investors in the U.S. capital markets. In the United States, policymakers understood the importance of financial reporting to building trust in strong capital markets and have given regulators and audit committees strong independent oversight of the auditing profession, which has led to improvements in the value and quality of financial reporting. The regulators over of the auditing profession are the Public Company Accounting Oversight Board (PCAOB) and the Securities and Exchange Commission (SEC or Commission).
The auditing profession is currently experiencing a dynamic regulatory climate. In this dynamic environment, we can expect the makeup and mandate of these regulators to evolve. Analyzing matters that have been the subject of enforcement actions can serve as a helpful indicator for what future enforcement priorities might—or might not—look like. For this report, King & Spalding and Ankura Consulting assisted the Anti-Fraud Collaboration (AFC) to conduct a comprehensive review of 148 settled disciplinary orders brought by the PCAOB and 255 Accounting and Auditing Enforcement Releases brought by the SEC from January 1, 2021 through December 31, 2024.
The review identified four key enforcement trends and regulatory insights pertinent to the financial reporting ecosystem:
- Revenue recognition continued to be a focus area for regulators of public companies due to its significance to investors and susceptibility for fraud.
- In recent years, there has been an increasing trend in enforcement actions from the PCAOB and decreasing trend from the SEC arising from inconsistent accounting practices after merger and acquisition related activity.
- The PCAOB and SEC brought several enforcement actions against audit firms and auditors. Both agencies demonstrated an inclination to loft heavy fines towards audit firms in matters related to integrity.
- The PCAOB and SEC increased the use of sweeps to bring compliance-oriented enforcement actions for issues such as audit committee communication and form disclosure inadequacies for the PCAOB, and off-channel communications for the SEC.
With this report, we hope to shed light on what future enforcement priorities might look like and provide key observations for issuers, auditors, and other key stakeholder groups on how to strengthen their compliance and anti-fraud programs and practices in an environment of uncertain and challenging market conditions, and regulatory and political developments. The AFC will continue to monitor developments in PCAOB and SEC enforcement initiatives and provide substantive insights to help audit firms and members of the financial reporting ecosystem stay informed and prepared as the regulatory environment continues to shift.