SEC Accounting and Auditing Enforcement Slumped in 2024, While PCAOB Enforcement Hit a New High

Three reports on accounting and auditing enforcement actions indicate that the Securities and Exchange Commission and the Public Company Accounting Oversight Board went in opposite directions in 2024.

“Accounting and auditing enforcement actions plummeted in the last fiscal year of Gary Gensler's tenure as Chair of the Securities and Exchange Commission (SEC) to the lowest number of actions since FY 2021,” according to SEC Accounting and Auditing Enforcement Activity: Year in Review 2024, Cornerstone Research’s annual review of SEC accounting enforcement.  On the other hand, in its report on 2024 PCAOB enforcement, Cornerstone finds that the PCAOB “finalized 51 enforcement actions during 2024--the highest number since 2017” and that PCAOB actions “finalized during the first half of 2024 were more than triple the number of Auditing Actions finalized during the first half of 2023.” Public Company Accounting Oversight Board (PCAOB) Enforcement Activity: 2024 Year in Review 2024.  Cornerstone also notes that in 2024 the Board assessed a record $35.5 million in monetary penalties. (For a discussion of Cornerstone’s reports on SEC and PCAOB accounting and audit enforcement in 2023, see Cornerstone: Accounting Class Actions and Enforcement Cases Continue Their Upward Trend, April 2024 Update.)

The Brattle Group also reports that “SEC activity was significantly muted in 2024, as the regulator brought only seven actions in 2024, down 50% from 2023 activity and the lowest level during any year in our sample (2018–2024) * while the PCAOB imposed record-breaking penalties for the third straight year.”  2024 Enforcement Activity Involving Auditors.  Brattle forecasts “a sea change in auditor enforcement activity” in 2025 as both the SEC and PCAOB, under new leadership, become less aggressive and more focused on traditional enforcement priorities. 

All three reports refer to the impact on SEC and PCAOB enforcement of the Supreme Court’s June 2024 decision in SEC v. Jarkesy .  Jarkesy held that the SEC's use of administrative proceedings to seek financial penalties in an action based on securities fraud charges was unconstitutional. In such cases, the Court decided, the defendant is entitled to a jury trial, which requires that the case be brought in a federal district court, not before an SEC administrative law judge. While Jarkesy involved SEC administrative proceedings, it seems also to preclude much of the PCAOB’s administrative enforcement.  And, unlike the SEC, the PCAOB does not have the option of bringing enforcement actions in federal court. 

Cornerstone: SEC Accounting and Auditing Enforcement

Cornerstone’s study of fiscal 2024 SEC accounting and auditing enforcement found that the Commission filed 45 accounting and auditing actions, about half (54 percent) of the number of cases brought in fiscal 2023. In addition, the SEC dismissed six accounting or auditing administrative proceedings following the Jarkesy decision. Despite bringing fewer cases, the SEC’s monetary penalties in these types of cases increased: The Commission imposed more than $771 million in total monetary penalties in FY 2024, the highest total since 2021.

Other highlights of Cornerstone’s SEC enforcement report include:

• The SEC is shifting from in-house administrative proceedings to actions in federal court. In 2023, the Commission brought 86 percent of its accounting and auditing cases as administrative proceedings, but in 2024 its use of administrative proceedings fell to 62 percent or 28 cases.  In all but one of the 28 administrative proceedings, a settlement was announced on the same day as the initiation of the case.  As noted above, the SEC dismissed six accounting/auditing administrative proceedings following Jarkesy.  Presumably, no contested administrative cases were brought post-Jarkesy.

• The SEC’s focus seems to have shifted to foreign respondents.   The number of SEC accounting or auditing enforcement actions initiated against U.S. respondents fell by 56 percent in FY 2024, while actions against non-U.S. respondents increased by 18 percent.  The 13 actions against non-U.S. respondents was the highest number since  2019. 

• Announcements of restatements or material control weaknesses attracted less enforcement attention in 2024.  The number of actions referring to announced restatements and/or material weaknesses in internal control dropped to the lowest level in recent years. Of the 45 SEC actions initiated in FY 2024, eight (18 percent ) referred to announced financial statement restatements and six (13 percent) referred to announcements of material weaknesses in internal control. This compares to 42 percent and 38 percent, respectively, in 2023.  Five actions (11 percent) referred to both an announced restatement and material weakness in internal control – the second lowest level since FY 2017.

• Revenue recognition and internal accounting control violations were the most common allegations in accounting and auditing enforcement cases. One or both of revenue recognition and internal accounting control violations were alleged in 58 percent of 2024 SEC cases.  However, the absolute numbers fell. For example, 22 (49 percent) of 2024 cases alleged internal accounting control violations, compared to 47 cases (56 percent) in 2023.  As to other types of violations, the Commission initiated three actions in FY 2024 alleging violations of the auditor independence requirements (down from four such actions in FY 2023), and five actions alleging violations of compensation "clawback" provision of the Sarbanes-Oxley Act (an increase from three such actions initiated in FY 2023).

• The SEC’s overall enforcement focus on individuals continued to soften but cases against CEOs and CFOs increased. In 2024, the SEC charged 37 individuals in its accounting/auditing cases.  This compares to 59 individual respondents in 2023 and 66 in 2022. The SEC named one or more individuals as defendants or respondents in 24 of the 45 accounting cases it filed (54 percent), and 27 percent of SEC accounting and auditing actions initiated in 2024 involved only individual respondents or defendants. By comparison, in 2023, there were 48 cases in which one or more individuals were charged, and those cases represented 58 percent of total accounting/auditing actions. While there were fewer individual defendants/respondents in 2024, those who were charged tended to hold senior positions. Twenty-five of those charged (67 percent) were a CEO or CFO at the time of the alleged violation.

• Cases involving auditors declined. The SEC changed 11 eleven auditor and audit firm respondents in 2024, half of the 22 auditors and audit firms that were charged in 2023 and lower than the FY2018-2022 average of 25 such defendants or respondents. Three of the 37 individuals in SEC 2024 accounting/auditing cases were auditors (eight percent), compared to 14 of the 59 individuals (24 percent) charged in 2023. 

• The monetary cost of settling an accounting case with the SEC rose sharply.  The $771 million in total monetary settlements in 2024 was an increase of $188 million over FY 2023.  In fiscal 2024, 67 respondents or defendants settled with the SEC. In those settlements, 63 of the settling parties (95 percent) were required to make a monetary payment, up from 86 percent in 2023. Civil penalties accounted for 46 percent of the $771 million the SEC collected. The remaining 54 percent was disgorgement of illegally obtained funds (47 percent) and prejudgment interest (seven percent). In 2024, the average monetary cost per settling respondent was $11.5 million; in 2023 the cost per settling respondent was $4.9 million.

• The SEC made frequent use of officer and director bars and bars from SEC practice. Nineteen (58 percent) of the 33 individuals who settled with the SEC in FY 2024 were prohibited from acting as an officer or director of an SEC-registered company.   Eleven of these bars were permanent, and the other eight averaged 6.5 years.  Five of the 33 settling parties were denied the privilege of appearing or practicing before the SEC as an accountant.  Three of these were permanent bars while the other two were suspensions from practice for an average of 1.5 years.

Cornerstone: PCAOB Enforcement

Cornerstone’s report on 2024 PCAOB enforcement finds that the Board publicly disclosed 51 enforcement actions in 2024. (Board enforcement matters are confidential until settled or decided in the Board’s favor.) Forty of those actions involved audit performance (Auditing Actions), an 8 percent increase over 2023; non-auditing actions involved such matters as reporting violations or failure to cooperate with a PCAOB inspection or investigation. The Board assessed monetary penalties of $35.5 million – a record for a single year and up 78 percent from 2023. Forty percent of all monetary penalties since the inception of the PCAOB’s enforcement program in 2004 were imposed in 2024. 

Other highlights of Cornerstone’s PCAOB enforcement report include:

• Despite its record 2024 results, PCAOB enforcement slowed following Jarkesy.  The 30 Auditing Actions finalized during the first half of 2024 were more than triple the number of Auditing Actions finalized in the first half of 2023. However, the Board only brough ten actions during the second half of 2024. As noted above, the Supreme Court announced its Jarkesy decision on June 27.

• The PCAOB’s focus tilted slightly to domestic respondents.  Unlike the SEC, the PCAOB’s enforcement program focused somewhat more heavily on domestic respondents in 2024. The Board brought 23 Auditing Actions (57 percent of the total) against U.S. respondents grew in 2024, compared to 19 cases (51 percent in 2023.

• PCAOB enforcement targets were split between individuals and firms.  For the consecutive year, most PCAOB respondents were firms rather than individuals. Compared to 2023, however, when firms comprised two-thirds of respondents, the proportion was more evenly split in 2024. The Board charged 25 individuals (47 percent of 53 total respondents) and 28 accounting firms (53 percent) in the 40 Auditing Actions disclosed in 2023. In 2023, the Board charged 19 individuals (36 percent of 53 total respondents) and 34 accounting firms (64 percent) in 37 Auditing Actions.

• Firm quality control remained an enforcement priority. In more than half of the 2024 Auditing Actions (52 percent), the PCAOB alleged violations of its quality control (QC) standards, and 15 percent of the 40 Auditing Actions alleged only QC violations.  One third of Auditing Actions involved only auditing standards violations (essentially the same as 32 percent in 2023).  The Board seems to have an increasing tendency to allege both an underlying violation and a related QC control violation – reflecting the idea that the underlying violation would not have occurred if quality controls had been adequate.  QC violations were combined with ethics and independence violations in five percent of Auditing Actions, with auditing standards violations in 12 percent, and with both ethics/independence and audit violations in 20 percent.   

• The Board took monetary penalties to a new level (again). As noted above, the PCAOB imposed record monetary penalties of nearly $35.5 million in 2024. Monetary penalties were imposed on all but four of the 53 respondents in cases that were settled or adjudicated in 2024. Monetary penalties imposed on firms were $34.1 million – 96 percent of the total – while individuals paid $1.3 million. The median individual penalty was $45,000 and the median firm penalty was $60,000. Eighty percent of total penalties were levied against non-U.S. firms. The PCAOB imposed a penalty on 92 percent of respondents in 2024, compared to 100 percent in 2023. Five respondents paid almost 90 percent of the total monetary penalties. 

• The PCAOB also made extensive use of non-monetary sanctions. Most firm respondents (71 percent) were required to undertake some type of remedial action (e.g., revised quality control procedures or staff training). The Board required eleven percent of firm respondents in 2024 Auditing Actions to retain an independent consultant, down from 15 percent in 2023.  Twenty-one percent of firm respondents had their PCAOB registration revoked, either permanently or temporarily.

• Individuals charged by the PCAOB were less likely to be permanently barred from auditing public companies or broker-dealers. Seventy-six percent of individual respondents in 2024 Auditing Actions were barred either permanently or temporarily from auditing public companies or broker-dealers, down over 85 percent in 2023. Eight percent of individual respondents were permanently barred, down from 21 percent in 2023.  For the 68 percent that received (or agreed to) bars that included a right to reapply, the average period before the individual could seek to reenter public company auditing was 2.5 years.  

Brattle’s Perspective

The Brattle Group report analyzes PCAOB and SEC enforcement against public accounting firms and professionals employed by public accounting firms during 2018–2024.  In particular, it compares auditor enforcement activity during 2024 to the first two full years of the Williams/Gensler administrations (2022 and 2023) and to activity during 2018–2021. Brattle’s findings are generally similar to Cornerstone’s although its methodology is somewhat different in that it considers only on cases against auditors, and it provides more regulatory context concerning enforcement developments. Brattle’s report is also more focused on comparing PCAOB enforcement to the SEC’s auditing cases.

The Brattle report also differs from Cornerstone’s papers in that Brattle includes predictions regarding future SEC and PCAOB auditor enforcement.  Brattle notes that “the combination of Trump 2.0 and ongoing constitutional challenges   will bring a sea change in auditor enforcement activity.”  Brattle expects Paul Atkins, President Trump’s choice to chair the SEC, “to scale back aggressive SEC enforcement, focus on protecting retail investors, create a more predictable regulatory environment for digital assets, and   continue to focus the SEC’s enforcement efforts on systemic audit failures, fraudulent revenue recognition, and egregious disclosure violations.”  Brattle also notes that Mr. Atkins (who took office at the SEC on April 21) has been a critic of the PCAOB and will likely replace its current leadership with board members “who will take a less aggressive stance on enforcement.”

Against this background, Brattle makes five predictions:

• The PCAOB and SEC Will Revert to a Focus on Individual Accountability. Under PCAOB Chair William’s and SEC Chair Gensler, both regulators placed a higher focus on charging firms than individuals. For example, under Chair Williams, PCAOB actions involving firm respondents outnumbered actions involving individuals more than two to one.  “Under Chair Atkins, we expect to see enforcement by both regulators revert back to a focus on individual accountability.”

• Penalties Will Fall and Become More Predictable. The SEC increased financial penalties to record or near-record levels in each of the last three fiscal years. “Under Mr. Atkin’s leadership, we predict a significant reduction in monetary sanctions and a return to a more predictable determination of penalties, perhaps akin to a framework on financial penalties articulated by the SEC nearly two decades ago *.”  Similarly, Brattle expects a decline in PCAOB penalties. Even aside from the enforcement philosophy of new board members, constitutional limits on the PCAOB’s enforcement powers are likely to put a brake on penalties.  “Although it is unclear what drove the change, we note that penalties imposed by the PCAOB post-Jarkesy have been significantly muted. Despite bringing a third of its 2024 actions after the June 2024 Jarkesy decision, only 2% of its penalties for the year were imposed post-Jarkesy.”

• Crypto-Related Enforcement Matters Involving Auditors Will Rise. The SEC is expected to be less aggressive in its crypto-related enforcement under Chair Atkins’ leadership.  However, Brattle anticipates that the resulting increased use of cryptocurrencies will lead to increased crypto-related fraud and that, in turn, will lead to more enforcement activity involving crypto-related fraud. “Auditors are particularly susceptible to such actions due to their requirement under AS 2401, Consideration of Fraud in a Financial Statement Audit, to consider fraud in planning and performing the audit.”

• PCAOB-Registered Firms in the PRC and Hong Kong Will Remain a Priority. Since 2022, the PCAOB has been able to inspection PRC- and Hong Kong-based accounting firms.  Based on these inspections the PCAOB brought five actions against these firms or affiliated individuals.  President Trump has issued executives order asserting power over independent agencies such as the SEC and “may view enforcement against Chinese firms (including Chinese audit firms) as another tool in US-China relations toolbox.”

• We Will See Fewer “Firsts”. Brattle notes that, under Chair Williams, the PCAOB highlighted several enforcement “firsts” in its annual reports.  These included “bringing the PCAOB’s ‘first action for failure to supervise personnel under Section 105(c)(6) of the Sarbanes-Oxley Act,’ ‘imposing the PCAOB’s first sanctions for failing to supervise an unregistered firm,’ and ‘imposing the PCAOB’s first-ever sanctions related to membership in an accounting alliance.’”  Brattle expects that, under Chair Atkins, “the SEC and an overhauled PCAOB will focus on more traditional enforcement priorities, such as financial fraud and straightforward violations of SEC and PCAOB rules, with a decreased likelihood of novel legal theories, rulemaking by enforcement, and first-of-their-kind enforcement actions.”

Audit Committee Takeaways

Despite year-to-year fluctuations, accounting and auditing enforcement are perennial SEC priorities. That focus may increase under the new SEC administration, since a back-to-basics approach to enforcement is likely to result in more, not fewer, accounting and financial disclosure cases.  The same may be true of PCAOB actions against auditors, although the future direction of PCAOB enforcement is harder to predict because of uncertainty concerning both who will be leading the Board and because of the constitutional questions that overhang the PCAOB’s enforcement program.

Audit committees and financial reporting management should also keep in mind Brattle’s prediction that the SEC will step up its focus on individual culpability. As noted above, while the number of individuals charged in SEC accounting cases fell in 2024 and 2023, those that the SEC did charge tended to hold senior positions, such as CEO or CFO. The risk that restatements, internal control material weaknesses, and other accounting-related problems will result in SEC enforcement action against the individuals involved, along with or instead of the reporting company, is likely to remain elevated.

For these reasons, audit committees should not assume that a more business-friendly regulatory climate and a less aggressive enforcement philosophy at the SEC and PCAOB will result in reduced scrutiny of public company financial reporting.