Non-U.S. respondents accounted for more than two-thirds of total monetary penalties
The Public Company Accounting Oversight Board (PCAOB) expanded its enforcement activity to the highest level since 2017, according to a new report released today by Cornerstone Research. Monetary penalties imposed by the PCAOB nearly doubled compared to the record set in 2022.
The report, PCAOB Enforcement Activity—2023 Year in Review, found that the PCAOB publicly disclosed 46 total enforcement actions, 37 of which related to the performance of an audit (auditing actions), an increase of more than 28% from 2022. Twenty-nine of the 37 auditing actions were concluded in the second half of 2023, matching the total number of auditing actions for 2022. Monetary penalties totaled $19.7 million, nearly doubling the previous record of approximately $10.5 million in 2022.
“There was a notable shift in the types of respondents in 2023 auditing actions” said Jean-Philippe Poissant, a report coauthor and cohead of Cornerstone Research’s accounting practice. “In the past, two-thirds of respondents were individuals. Yet in 2023, two-thirds of respondents were firms. This shift was the result of a substantial jump in the number of auditing actions that only involved firms.”
The vast majority – 79% – of auditing actions in 2023 included alleged violations of Auditing Standards. Sixty percent of those actions included additional allegations related to Ethics and Independence Standards, Quality Control Standards, or both. For the first time, the PCAOB included allegations related to Critical Audit Matters (“CAMs”) in enforcement actions, with three actions including such allegations.
Of the $19.7 million in total monetary penalties in 2023, $18.8 million were imposed on firms, nearly twice the $9.5 million imposed on firms in 2022. Fifteen percent of firm respondents were required to obtain an independent consultant.
Russell Molter, a principal at Cornerstone Research and report coauthor, added, “More than two-thirds of the PCAOB’s record-setting monetary penalties were imposed on non-U.S. respondents in 2023, even though non-U.S. respondents accounted for less than half of the auditing actions during the year.”
Key Trends:
- The PCAOB settled four actions involving three China-based firms after securing access to inspect and investigate Chinese firms in 2022.
- For the second consecutive year, there were no enforcement actions related to a company’s disclosure of a material weakness in internal control. In contrast, SEC enforcement actions that referred to an announced restatement and/or material weakness in internal control reached their highest levels in recent years.
- Violations of Quality Control standards were alleged in more than half of the actions involving firm respondents.
- Nearly 80% of the total monetary penalties in 2023 were assessed on just six defendants.
The proportion of individual respondents who were barred increased from 64% in 2022 to 85% in 2023.