The Brattle Group’s latest report has revealed that constitutional challenges affected the Public Company Accounting Oversight Board (PCAOB) and the US Securities and Exchange Commission (SEC) in shaping enforcement activity involving auditors in 2024.
While combined enforcement actions by both regulators remained elevated overall, legal setbacks are seen to have slowed the pace of these actions in the second half of the year.
The report, titled “2024 Enforcement Activity Involving Auditors: SEC & PCAOB Enforcement Actions Brought Against Public Accounting Firms and Individuals,” was authored by Alison Forman and Adam Karageorge.
It compares the 2024 data with data from 2022, 2023, and 2018-2021, noting the heightened activity under the leadership of PCAOB chair Erica Williams and SEC chair Gary Gensler.
The study also looks at enforcement trends from 2018–2021 under prior administrations.
According to the report, the SEC v. Jarkesy decision, which declared the SEC’s use of administrative proceedings to impose financial civil penalties for securities fraud unconstitutional, had an effect on the SEC’s enforcement strategy.
As a result, the SEC initiated only seven auditor-related actions in 2024, a 50% drop compared to 2023, marking the lowest annual total in the seven-year period studied.
In 2024, the PCAOB initiated 88% of total actions against auditors, which is claimed to be the highest level of enforcement since 2017.
Together, the PCAOB and the US Securities and Exchange Commission (SEC) imposed $52.2m in monetary sanctions, a 66% increase from 2023 and over two and a half times the 2018–2021 average.
The PCAOB’s penalties in 2024 amounted to $35.7m, which is more than 23 times the annual average of the previous administration.
After the Jarkesy ruling in late June 2024, only one-third of PCAOB actions and 2% of penalties were brought, indicating a substantial impact on enforcement activity.
Securities and Exchange Commission v. Jarkesy affirms the Seventh Amendment right to a jury trial for civil monetary penalties in securities fraud cases.
Forman said: “Though PCAOB and SEC enforcement against auditors remained high in 2024, aggregate statistics don’t tell the full story.
“In fact, activity appears to have been substantially impacted by the Supreme Court’s SEC vs. Jarkesy ruling, which found that the regulator’s use of administrative proceedings to seek financial civil penalties for securities fraud was unconstitutional. We expect fallout from Jarkesy and similar constitutional challenges facing the PCAOB – as well as the new presidential administration – to dramatically shift the enforcement landscape moving forward.”
The report also offers predictions regarding the auditor enforcement landscape for 2025 and beyond, considering the constitutional challenges faced by both regulators.
