SEC targets auditing ‘bad actors’ with new enforcement team

The Securities and Exchange Commission is creating a new enforcement team to target “bad actors” in the auditing profession after the agency cut the budget of the independent board that traditionally polices those responsible for vetting company financial statements.

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In a federal jobs posting, the SEC’s enforcement division said it is seeking applications for a senior attorney and manager in its new “SOX Group” — a reference to the landmark Sarbanes-Oxley Act passed after the collapse of Enron Corp. The new unit will investigate and litigate matters involving potential violations of Sarbanes-Oxley auditing standards and provisions, according to the posting. 

The 2002 law overhauled the audit profession and created the Public Company Accounting Oversight Board, the independent agency that regulates and scrutinizes the work of firms and individuals that vet company financial statements. 

“Auditors serve as critical gatekeepers in our capital markets — enhancing the integrity of financial reporting and helping to protect investors from fraud,” the SEC said in a statement. “Additional hires in the enforcement division will continue the commission’s longstanding efforts to crack down on bad actors in the profession.”

An SEC spokesperson didn’t immediately respond to follow-up questions about the group, including whether the agency planned to move more auditor enforcement out of the PCAOB and into the SEC. A spokesperson for the PCAOB declined to comment.

Congress created the PCAOB to restore investor confidence in corporate accounting after wide scale fraud that overstated earnings at Enron and WorldCom Inc. led to the collapse of both companies and billions of dollars in losses for investors.  

The board has been a bit of a political football over the years, with Republican lawmakers attempting last year to dismantle it and fold oversight into the SEC. Paul Atkins, the SEC chairman, has referred to the board as the “Peekaboo” and decried its board members’ high salaries. The SEC, which approves the PCAOB’s budget, cut board member salaries in half in January and slashed the group’s enforcement unit budget by 15%.

The PCAOB has a team of inspectors that sort through work by auditors to ensure they’re not cutting corners when scrutinizing company financial statements. It also has an enforcement arm. 

The SEC’s enforcement division also has an accounting unit. That group investigates allegations of accounting violations like earnings management and takes action against auditors that violate securities laws.