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The SEC Enforcement Division’s Focus on Auditors and Auditing

Andrew Ceresney, Director, Division of Enforcement

Keynote Address: American Law Institute Conference on Accountants' Liability 2016: Confronting Enforcement and Litigation Risks<br> Washington, D.C.

Sept. 22, 2016


Good morning and thank you for that very kind introduction. It’s a pleasure to speak with you all today. Before I start, I must give our standard disclaimer that the views I express today are my own and do not necessarily reflect the views of the Commission or its staff.[1]

This morning, I want to discuss our enforcement work in the area of auditing, a topic that is sure to be of interest to all of you. There is no doubt that the work of auditors, who function as critical gatekeepers in the area of issuer reporting and disclosure, is an important part of our renewed focus on financial reporting. As Chair White has emphasized, “[c]omprehensive, accurate, and reliable financial reporting is the bedrock upon which our markets are based, and is essential to ensuring public confidence in them,”[2] and preparers “are the lynchpin of high-quality, reliable financial reporting.[3] And, as the Supreme Court noted more than 30 years ago in Arthur Young, auditors play a crucial role in the financial reporting process by serving a “public watchdog function” that demands “total independence from the client at all times and requires complete fidelity to the public trust.”[4]

I want to acknowledge the hard work and dedication that accountants and auditors demonstrate every day to ensure reliable financial reporting. At the SEC, we hold accountants and auditors in high regard and consider them to be key partners in our investor protection efforts. At the same time, however, we must also hold those who become auditors to the high standards of the profession. We have for a long time, and continue to, closely scrutinize the conduct of auditors during the course of our investigations and have not hesitated to pursue auditors where such charges are warranted or their conduct may indicate that they are a threat to the Commission’s processes.

I thought I would start my remarks today with a discussion of certain key parts of the legal and regulatory framework governing the Commission’s enforcement actions against auditors. I will also discuss the history and context of Rule 102(e) of the Commission’s Rules of Practice, since a significant number of our accounting-related enforcement proceedings are instituted under that rule. After that, I plan to spend some time discussing the Commission’s enforcement actions against auditors. Finally, I will give you my perspective on what are the key takeaways from our actions in this area.

The Legal and Regulatory Landscape

The Commission’s cases against auditors generally fall into two categories — audit failures and auditor independence violations. Generally, an audit failure occurs when an auditor deviates from the applicable professional standards in such a way that indicates the opinion contained in its audit report is false. As for independence, an auditor must be independent of its SEC audit clients pursuant to SEC and PCAOB rules, both in appearance and in fact.

One of the most important remedial tools we have to ensure accountability for audit quality and auditor independence is Rule 102(e) of the Commission’s Rules of Practice. The Commission adopted Rule 2(e), the predecessor to Rule 102(e), in 1935 under its general rulemaking powers as a “means to ensure that those professionals, on whom the Commission relies heavily in the performance of its statutory duties, perform their tasks diligently and with a reasonable degree of competence.[5]

Under Rule 102(e), the Commission has authority to bring proceedings to censure, or temporarily or permanently deny, accountants, auditors and other professionals, the privilege of appearing or practicing before the Commission if that professional is found by the Commission to have engaged in improper professional conduct.[6] The Commission amended Rule 102(e) in 1998 to clarify that, for licensed accountants, “improper professional conduct” includes, along with intentional, knowing, or reckless conduct, two kinds of negligent conduct — a single act of “highly unreasonable conduct” in circumstances warranting “heightened scrutiny” or “repeated instances of unreasonable conduct . . . indicat[ing] a lack of competence to practice before the Commission.”[7] Remedies under Rule 102(e) serve to protect the integrity of the Commission’s processes,[8] and in evaluating potential suspensions of accountants and auditors under Rule 102(e), a key part of that evaluation is the threat posed to the Commission’s processes.[9]

Rule 102(e) is not the only tool available to the Commission. For example, the Commission can charge auditors with direct violations of the securities laws, including charging them with primary violations of the anti-fraud provisions of the securities laws in those somewhat rare situations where auditors are engaged in fraud, or secondary violations where they aided and abetted or caused primary violations by others. In some instances, auditors will be charged based on misrepresentations in their audit report.[10] And, when an auditor of an issuer determines it is likely that an illegal act has occurred, the federal securities laws require the auditor to investigate and report upwards pursuant to Section 10A of the Exchange Act.[11] Failure to do so can also be the basis for Commission action.

Finally, I should note that we do not occupy this space alone. The PCAOB “enforce[s] compliance with [Sarbanes-Oxley], the rules of the [PCAOB], professional standards, and the securities laws relating to the preparation and issuance of audit reports . . . .”[12] Both the Commission and the PCAOB share regulatory enforcement authority over auditors, and we coordinate closely with the PCOAB to ensure that our collective resources are applied effectively and efficiently.

History and Context of the Commission’s Actions Against Auditors

The Commission’s focus on auditors is certainly not new and actions involving auditors have been a long-standing staple of our enforcement efforts. We have a rich tradition of actions that highlight the many problems that can occur when auditors fail to comply with professional standards.

In the early 1980s, the Commission charged Fox & Company with allegedly issuing false and misleading audit reports containing unqualified opinions that the financial statements of several issuers were presented fairly, in all material respects, in accordance with GAAP.[13] In the years that followed, the Commission brought a number of important audit-related cases that did not involve allegations of fraud.[14] For instance, in 1999, the Commission brought a settled independence case against PricewaterhouseCoopers LLP, finding that, as a result of the merger of Coopers & Lybrand and Price Waterhouse, numerous partners and other professionals at the firm — and even one of the firm’s retirement plans — held investments in the securities of firm audit clients.[15]

Then, in the early 2000s, in the midst of several major accounting scandals, we saw an increase in focus on auditor cases, including cases against national audit firms and their partners. In 2001, the Commission charged Arthur Andersen LLP and four of its current and former partners, including a regional practice director, with fraud in connection with Andersen’s audits of the annual financial statements of Waste Management, Inc. for the years 1992 through 1996. The Commission alleged that those financial statements, on which Arthur Andersen issued materially false and misleading audit reports, overstated Waste Management’s pre-tax income by more than $1 billion. To settle these allegations, Andersen agreed to entry of the first antifraud injunction against a major accounting firm in more than 20 years, and to pay the then largest-ever civil penalty against a Big Five accounting firm — $7 million.[16]

In 2002, the Commission announced two significant independence matters — a settled case with KPMG LLP for independence violations arising from its provision of audit services to an audit client at the same time that it had made substantial financial investments in the client,[17] and a litigated action against Ernst & Young LLP, alleging that the firm violated the independence requirements by engaging in a series of business and marketing relationships from 1994 through 1999 with its audit client PeopleSoft Inc.[18] In 2004, the litigated proceeding against Ernst & Young resulted in a significant initial decision that suspended the firm from accepting audit engagements from new SEC registrant audit clients for a period of six months from the effective date of the decision and ordered the firm to retain an independent consultant to work with Ernst & Young LLP to assure the Commission that the firm’s leadership was committed to, and had implemented policies and procedures that reasonably could be expected to, remedy the auditor independence violations described in the decision.[19]

Then, in 2003, the Commission filed a civil injunctive action against KPMG LLP and five of the firm’s partners — including the head of the firm’s department of professional practice — in connection with the 1997 through 2000 audits of Xerox Corp., alleging that they issued materially false and misleading audit reports on Xerox’s financial statements, which had used manipulative accounting practices to close a $3 billion “gap” between actual operating results and results reported to the investing public.[20] The firm agreed to settle the allegations two years later by paying $22 million and, later that year and in the following year, the Commission announced settlements with the five partners that included penalties and suspensions from practice before the Commission of varying lengths for four of the partners.[21]

The same month that the settlement with KPMG was announced, the Commission announced that Deloitte & Touche LLP had agreed to pay $50 million — the largest monetary sanction the Commission has ever obtained from an audit firm — to settle charges stemming from its audit of Adelphia Communications Corp.’s fiscal year 2000 financial statements.[22] Then, in 2009, the Commission charged Ernst & Young LLP and six of its current and former partners, including members of the firm’s national office, for their roles relating to an accounting fraud at Bally Total Fitness Holding Corp. during the audit years 2001 to 2003.[23]

In the midst of all of this activity, Congress passed the Sarbanes-Oxley Act of 2002, which ushered in a new era for the auditing profession, including the creation of the PCAOB,[24] and the requirement for auditors of some issuers to attest to, or report on, management’s report regarding internal controls over financial reporting.[25] There is no question that these changes resulted in a sea change at audit firms, increasing their focus on quality and controls.

The Current Landscape

Post Sarbanes-Oxley, the Commission’s focus on auditor compliance with professional standards has continued. When Chair White arrived at the Commission in April 2013, she came with a plan to refocus the Enforcement staff on financial reporting issues and gatekeepers.[26] Given the importance of financial reporting and auditing to the integrity of our markets and the protection of investors, and the SEC’s unique ability to do such complex cases, failures in that sphere must always be a high priority for the Division. I addressed this audience three years ago and talked about our renewed commitment in this area, including our creation of the Financial Reporting and Audit Task Force, which has now become a permanent group.[27] In late September 2013, the Division announced “Operation Broken Gate” — an initiative to identify auditors who neglected their duties and the required auditing standards,[28] and opened important issuer reporting and disclosure-related cases in every office, utilizing the Division’s skilled accountants and talented attorneys to build the cases. And, our renewed focus on financial reporting issues has resulted in a significant increase in the quality and quantity of financial reporting cases, and in numerous cases against auditors and audit firms, including smaller, mid-size, and national audit firms.

While the numbers only tell part of the story, from fiscal year 2013 through the end of last fiscal year, excluding follow-on proceedings, the Commission has more than doubled its actions in the issuer reporting and disclosure area, which includes actions against auditors and audit firms — from 53 in fiscal year 2013 to 114 in fiscal year 2015.[29] We have made similar strides in the number of parties we have charged for such violations: in the past two fiscal years, excluding follow-ons, we have charged 128 and 191 parties, respectively, with issuer reporting and disclosure violations, a significant increase over the prior years.[30] The number of accountant proceedings under Rule 102(e) has also been increasing, from 37 respondents in fiscal year 2013 to 76 respondents in fiscal year 2015, which included actions against 57 individual accountants and 19 firms.[31] And, we continue to see similar trends in the number of proceedings against accountants under Rule 102(e) in the current fiscal year.

While there have been improvements in audit quality and processes, as you will see in a moment when I discuss some of our recent cases, the audit failures we have seen continue to highlight a variety of professional failures. At a high level, some of the indicators of good auditing include exercising due professional care and professional skepticism, obtaining sufficient appropriate audit evidence to support the audit opinion, and properly documenting audit work. Many of our recent audit failure cases demonstrate deficiencies in some or all of these areas. In addition, recent cases also highlight failures in areas including properly planning the audit, adequately training or supervising staff, over-reliance on management representations without sufficient corroborating evidence, failures in auditing valuation estimates by management, and in understanding and appropriately auditing related party transactions.

Capacity and Competence Issues

In policing the auditing space, one key systemic issue we encounter is firms taking on issuer clients well beyond their capacity. We have seen instances of a lack of understanding of the applicable rules, a lack of resources given the number and size of issuers, or undue reliance on generic audit checklists, particularly during the planning phase of the audit. For example:

  • In 2014, Baker Tilly Hong Kong Ltd. and two of the firm’s accountants agreed to pay more than $114,000 in monetary sanctions for failing to properly audit year-end financial statements of a company we charged with fraud. There, the audit team failed to adequately audit 176 related-party transactions that were called into question in an independent forensic accounting report. The audit failures were due, in part, to the audit team’s lack of adequate professional training in U.S. GAAP.[32]
  • Late last year, the Commission suspended five accountants and two audit firms from appearing or practicing before the SEC after they performed deficient audits of public companies, jeopardized the independence of other audits, and falsified and backdated audit documents, among other misconduct.[33] In fact, one of the firms had over 70 public company clients but had only one partner — the firm’s sole owner — authorized to sign or issue audit reports, and also lacked the professional staff to properly perform the audits.[34]

Undue Reliance on Management

Another class of cases against auditors involves failure to exercise sufficient professional skepticism in evaluating management representations. Particularly where there are red flags, representations from management will not be sufficient evidential matter to support an audit finding and we have emphasized the need in our actions for more substantiation.

For example, we charged two KPMG auditors — the engagement partner and senior manager — for their alleged roles in a failed audit of TierOne Bank, a Nebraska-based bank that hid millions of dollars in loan losses from investors during the financial crisis and eventually was forced to file for bankruptcy.[35] We alleged that the two auditors failed to appropriately scrutinize management’s estimates of TierOne’s allowance for loan and lease losses which, due in part to the financial crisis and problems in the real estate market, was one of the highest risk areas of the audit. We further alleged that the auditors relied on stale information and management’s representations and failed to heed numerous red flags when issuing unqualified opinions on the bank’s 2008 financial statements and internal control over financial reporting. The Commission recently issued an opinion imposing suspensions on both the engagement partner and the senior manager on the TierOne Bank audit.[36]

Similarly, we recently suspended an engagement partner for conducting a faulty audit of the financial statements of a public company that was committing fraud, and EFP Rotenberg LLP, the firm where he was a partner at the time, agreed to an undertaking not to accept new public company clients for one year. The audit client, ContinuityX Solutions Inc., claimed to be a commission-based sales agent, selling enterprise Internet services provided by two providers.[37] Despite being aware of red flags suggesting that security deposits one of the customers paid were not assets of the audit client, as the audit client represented, the firm failed to perform sufficient procedures to resolve the inconsistencies in the audit evidence. As a result, the auditors did not detect that 99% of the company’s revenues were false.[38]

Essentially No Audit At All

We also see examples of firms engaging in essentially no audit at all, often related to audits of microcap issuers.[39] In the microcap space, from April 2013 to the present, the Commission has brought proceedings against 23 audit firms and sole practitioners and 43 individual auditors for audit failures or — where warranted — for fraud. Last fiscal year alone, the Commission proceeded against 14 accountants for their roles in aiding perpetrators of microcap fraud.[40]

Insufficient Audit Documentation

Insufficient audit documentation is another area where we have seen firms fail to comply with professional standards. For example, earlier this year, we suspended Silberstein Ungar PLLC and four of the firm’s partners for failing to comply with PCAOB audit standards in connection with the audits of nine microcap issuers. The documentation in that case included audit testing prepared and performed by a different accounting firm for a different audit of the client, or audits by the same firm of other clients.[41]

Evaluating Management Estimates

One area in particular where we have seen repeated audit failures is in the review of management valuation estimates. It is critical that auditors carefully scrutinize management’s valuation estimates supporting the financial statements. This focus must go beyond a superficial understanding of the methodologies, assumptions and timing underlying the valuation. And, failure to do so cannot be remedied by the singular notion that valuations require professional judgment. We have seen these types of audit failures in both the investment advisory space and audits of corporate issuers.

For example, we charged Summit Asset Strategies Investment Management and its CEO with fraudulently inflating the values of investments in the portfolio of a private fund they advised so they could collect unearned management fees. The partner and manager on the audit recognized that the valuations posed a significant risk yet failed to obtain sufficient appropriate audit evidence with respect to the existence of certain fund assets. As a result of these failures, the Commission suspended the auditors with a right to apply for reinstatement after a period of three years.[42]

Similarly, the Commission charged the lead engagement partner on the audit of Miller Energy Resources, Inc. for audit failures associated with the issuer’s valuation estimate of certain oil and gas assets of over $480 million that the company had purchased soon before for $4.25 million in cash and assumption of liabilities.[43] The basis for the value was a reserve report that explicitly cautioned that it should not be construed as an estimate of fair value. During the fiscal year 2010 audit of Miller Energy’s financial statements, Miller Energy’s external auditor failed to adequately test the valuation of the assets and inappropriately relied on the reserve report and a related cost study to justify the $480 million valuation. These failures resulted in a settlement that included a suspension of the external audit partner, with the right to apply for reinstatement after a period of three years.[44]

Cases Against Audit Firms

I want to spend a few minutes talking about our recent enforcement actions against major national audit firms. Last year, we announced audit-failure related cases against national audit firms BDO and Grant Thornton.[45] These actions were the first cases against national audit firms for audit failures since 2009[46] other than for independence violations and the first settled actions that included admissions of wrongdoing by an audit firm.

The charges against BDO and five of its partners arose from an audit client’s purported certificate of deposit, representing approximately half of its assets, which went missing.[47] When the money was returned to the client under suspicious circumstances from parties other than the bank where the funds were purportedly held, management made inconsistent statements to the auditors.[48] BDO demanded that the audit client conduct an independent investigation.[49] But then, about a week later, without receiving any real explanation or evidence explaining the prior inconsistencies or transactions, and with the concurrence of national office personnel, BDO withdrew its demand and issued an audit report containing an unqualified opinion on the client’s financial statements.[50] The following year, BDO learned of a criminal complaint against the president and CEO of the bank alleging a wide ranging conspiracy that involved, among other things, the certificate of deposit at issue.[51] Despite the criminal complaint and a guilty plea by the bank’s president and CEO, BDO failed to perform appropriate audit procedures to determine whether this new information had any impact on the client’s financial statements or the firm’s previously issued audit report.[52]

The Commission’s charges against Grant Thornton and two of its partners arose from the failure to heed numerous warnings and red flags concerning alleged frauds occurring at two audit clients — Assisted Living Concepts and Broadwind Energy — both of which eventually became the subjects of enforcement action by the Commission for improper financial reporting.[53] The firm had assigned a particular audit partner to oversee both audits and allowed the partner to continue on those audits despite having received numerous warnings of quality issues with her work.[54] Aware of these concerns, the firm failed to adequately address the situation, providing insufficient technical resources and minimal oversight despite the increased risks.[55]

In our actions, we carefully consider the facts and circumstances of the audits to assess whether to charge the audit firm. In the case against BDO, personnel from the firm’s national office were involved in the decision to withdraw the demand for an independent investigation. While national office involvement is good when appropriate, in this case, the decision to withdraw the demand for an independent investigation — without any real evidence explaining the inconsistencies — was relevant to our assessment. The competence and staffing issues in the multiple audits at issue, as well as red flags about the auditor’s performance, were relevant in the case against Grant Thornton.

Independence Violations

I now want to spend some time discussing the Commission’s enforcement actions against auditors for independence violations, as this is an area of significant importance to the Commission and to the audit profession. In order to be a “public watchdog,”[56] auditors need to be independent and our actions against auditors for independence violations reflect the breadth and depth of our commitment to this requirement. In recent years, we have brought independence-related cases involving, among others: the provision of bookkeeping and expert services to affiliates of audit clients[57]; audit personnel owning stock in audit clients or affiliates of audit clients[58]; lobbying on behalf of audit clients[59]; service by audit firm employees or affiliates on boards of audit clients[60]; preparation of financial statements of brokerage firms who also were audit clients[61]; circumvention of the lead audit partner rotation requirements[62]; and for indemnification provisions included in engagement letters.[63]

Just this week, the Commission announced two sets of charges against Ernst & Young and several of its partners arising from close personal relationships between senior management at audit clients and senior engagement personnel.[64] These settled actions are the Commission’s first independence-related actions based on close personal relationships between auditors and audit clients.

In one case, the audit partner maintained a close personal and romantic relationship with the chief accounting officer of the issuer.[65] The coordinating partner on the engagement team was aware of facts suggesting a possible romantic relationship but failed to follow up on the red flags.[66]

The other case illustrates the independence issues which can occur in the context of friendships that arise in the course of repairing or maintaining client relations. In the other case, the audit partner, who had been tasked with repairing Ernst & Young’s troubled relationship with the issuer, developed a close personal friendship with the issuer’s CFO that entailed, among other things, spending extensive leisure time, including regular overnight, out-of-town trips and attendance at sporting events, with the CFO and the CFO’s family.[67] Over three audit periods, the audit partner incurred more than $100,000 in entertainment expenses in connection with the issuer.[68] More senior personnel at Ernst & Young were placed on notice of the audit partner’s excessive expenses, but Ernst & Young failed to take appropriate steps to determine whether these expenses were red flags signaling that the audit partner’s independence was impaired.[69]

In short, these two matters revealed a systemic independence issue at the firm and caused Ernst & Young and its partners to pay a steep price — the firm was ordered to pay over $9.3 million in combined disgorgement, interest and penalties and the three firm partners collectively agreed to pay $95,000 in penalties and to be suspended from appearing or practicing before the SEC as accountants, with rights to apply for reinstatement after three years. These actions also are significant because the Commission charged the former senior accounting and finance personnel with violations arising from the issuers’ failure to include financial statements audited by an independent auditor. Both individuals agreed to pay $25,000 each in penalties, while one of the individuals — the former chief accounting officer at one of the issuers — agreed to a suspension from appearing or practicing before the SEC as an accountant, with the right to apply for reinstatement after one year.[70]

Lessons Learned

I hope my speech has given you a sense of the rich history of the Commission’s actions against auditors, which has continued through the present. I want to close my remarks today by distilling all of this into several key lessons and takeaways for the auditing profession.

First, before engaging with an audit client, auditors should ensure that the firm and its assigned personnel have sufficient capacity and competence to audit the client according to professional standards. Where there are red flags suggesting a lack of competence by audit team members, the firm must take action and remedy the situation.

Second, audits need to be properly planned and executed, with significant risks identified and addressed through adequate audit procedures. The planning process is key to the success of the audit and must be given adequate attention.

Third, auditors need to exercise appropriate professional skepticism, gather sufficient appropriate audit evidence, adequately document work, and, particularly when there are red flags, require more sufficient evidential matter than representations from management. Auditors perform a key role in providing a check on management’s financial reporting and they must perform that role with a skeptical eye and appropriate objectivity.

Fourth, auditors should consult internally when particularly troublesome issues arise. Firms must have knowledgeable personnel ready to assist in sensitive areas and those personnel, as well as the audit personnel, must be ready to hold the line against the client when their concerns are not addressed. Audit firms are one of the last lines of defense for investors, and they must act accordingly.

Finally, firms must have robust monitoring processes and training on independence issues so that firms comply with independence requirements and so that individual auditors are aware of, and well-versed on, areas of potential independence violations. Many independence-related issues can be avoided through strong firm processes and a tone at the top that emphasizes auditor independence. Firms that are not sufficiently proactive in guarding against independence lapses risk enforcement action.


I hope I have given you a sense of the history of our audit-related enforcement work, as well as our current areas of focus. We will continue to be focused on financial reporting and the critical roles auditors and audit firms play in ensuring accurate and reliable financial reporting, which our markets depend on in ensuring investor confidence.

We rely on auditors as essential partners in ensuring comprehensive, accurate, and reliable financial reporting, and they have our full support in this regard. That said, we will continue to scrutinize auditor work in all of our investigations. While good faith errors in judgment will not result in liability, those who fail to follow audit standards and perform unreasonable audits can expect scrutiny through our enforcement efforts.

Thank you for your time and attention.

[1] The Securities and Exchange Commission, as a matter of policy, disclaims responsibility for any private publication or statement by any of its employees. The views expressed herein are those of the author and do not necessarily reflect the views of the Commission or of the author’s colleagues on the staff of the Commission.

[2] Chair Mary Jo White, U.S. Secs. & Exch. Comm’n, Testimony on “Oversight of the U.S. Securities and Exchange Commission,” (June 14, 2016), available at

[3] Chair Mary Jo White, U.S. Secs. & Exch. Comm’n, Keynote Address at the 2015 AICPA National Conference: “Maintaining High-Quality, Reliable Financial Reporting: A Shared and Weighty Responsibility” (Dec. 9, 2015), available at (“White AICPA Speech”).

[4] U.S. v. Arthur Young & Co., 465 U.S. 805, 818 (1984) (“Arthur Young”).

[5] Touche Ross & Co. v. SEC, 609 F.2d 570, 582 (2d Cir. 1979).

[6] 17 C.F.R. § 201.102(e)(1)(ii).

[7] Id. § 201.102(e)(1)(iv).

[8] See, e.g., McCurdy v. SEC, 396 F.3d 1258, 1264-65 (D.C. Cir. 2005).

[9] See, e.g., Robert W. Armstrong, III, Exchange Act Release No. 51920, available at

[10] Cf. U.S. v Simon, 425 F.2d 796 (2d Cir. 1969), cert. denied, 397 U.S. 1006 (1970).

[11] 15 U.S.C. § 78j-1(b)(1)(B).

[12] Sarbanes-Oxley Act of 2002 § 101(c)(6), Pub L. No. 107-204, 116 Stat. 745, 751 (July 30, 2002) (codified at 15 U.S.C. § 7211) (“Sarbanes-Oxley”).

[13] Litigation Release No. 10051, Securities and Exchange Commission v. Fox & Company, available at 1983 WL 1334.

[14] See, e.g., Press Release 99-75, W.R. Grace & Co. and Outside Auditors Settle SEC Proceedings (June 30, 1999), available at

[15] Press Release 99-5, SEC Censures PricewaterhouseCoopers for Violating Auditor Independence Rules and Improper Professional Conduct (Jan. 14, 1999), available at

[16] Press Release 2001-62, Arthur Andersen LLP Agrees to Settlement Resulting in First Antifraud Injunction in More Than 20 Years and Largest-Ever Civil Penalty ($7 Million) in SEC Enforcement Action Against a Big Five Accounting Firm (June 19, 2001), available at; Litigation Release No. 17039, Arthur Andersen LLP and Three Partners Settle Civil Injunctive Action Charging Violations of Antifraud Provisions, and Settle Related Administrative Proceedings, Arising Out of Andersen’s Audits of Waste Management, Inc.’s Financial Statements (June 19, 2001), available at

[17] Press Release 2002-4, SEC Censures KPMG for Auditor Independence Violation (Jan. 14, 2002), available at

[18] U.S. Secs. & Exch. Comm’n, SEC Institutes Proceedings Against Ernst & Young to Resolve Auditor Independence Allegations, Exchange Act Release No. 46821 (Nov. 13, 2002).

[19] Ernst & Young LLP, Initial Decision Release No. 249 (Apr. 16, 2004), available at; see also Ernst & Young LLP, Exchange Act Release No. 49615 (Apr. 26, 2004) (order granting motion for expedited entry of final order and notice that initial decision has become final), available at

[20] Litigation Release No. 18389, SEC Files an Amended Complaint Charging an Additional KPMG Partner with Fraud In Connection With Audits of Xerox (Oct. 3, 2003), available at; Press Release 2003-16, SEC Charges KPMG and Four KPMG Partners With Fraud in Connection with Audits of Xerox; SEC Seeks Injunction, Disgorgement and Penalties (Jan. 29, 2003), available at

[21] Press Release 2006-23, Four Current or Former KPMG Partners Settle SEC Litigation Relating to Xerox Audits; Three Partners Agree to Permanent Injunctions, Record Penalties and SEC Suspensions; Fourth Partner Agrees to SEC Censure (Feb. 22, 2006), available at; Litigation Release No. 19418, Former KPMG Partner Pays $100,000 to Settle SEC Litigation Relating to Xerox Audits (Oct. 6, 2005), available at; Press Release 2005-59, KPMG Pays $22 Million to Settle SEC Litigation Relating to Xerox Audits (Apr. 19, 2005), available at

[22] Press Release 2005-65, SEC Charges Deloitte & Touche for Adelphia Audit (Apr. 26, 2005), available at

[23] Press Release 2009-271, SEC Charges Ernst & Young and Six Partners for Roles in Accounting Violations at Bally Total Fitness (Dec. 17, 2009), available at (“Bally Total Fitness”).

[24] Sarbanes-Oxley § 101, 116 Stat. at 750-53 (codified at 15 U.S.C. § 7211).

[25] Id. § 404(b), 116 Stat. at 789 (codified at 15 U.S.C. § 7262).

[26] Chair Mary Jo White, U.S. Secs. & Exch. Comm’n, Remarks at the Securities Enforcement Forum (Oct. 9, 2013), available at (“White Securities Enforcement Forum Speech”).

[27] Andrew Ceresney, Dir. Div. of Enforcement, U.S. Secs. & Exch. Comm’n, Financial Reporting and Accounting Fraud (Sept. 19, 2013), available at

[28] See Press Release 2013-207, SEC Charges Three Auditors in Continuing Crackdown on Violations on Failures By Gatekeepers (Sept. 30, 2013), available at; see also White Securities Enforcement Forum Speech, supra note 26.

[29] Andrew Ceresney, Dir. Div. of Enforcement, U.S. Secs. & Exch. Comm’n, Directors Forum 2016 Keynote Address (Jan. 25, 2016), available at

[30] Id.

[31] See White AICPA Speech, supra note 3.

[32] Press Release 2014-284, SEC Imposes Sanctions Against Hong Kong-Based Firm and Two Accountants for Audit Failures (Dec. 17, 2014), available at

[33] Press Release 2015-275, SEC Suspends Public Accountants for Bad Auditing (Dec. 10, 2015), available at

[34] Peter Messineo, CPA, et al., Exchange Act Release No. 76607 (Dec. 10, 2015), available at; see also Press Release 2013-238, SEC Charges New York-Based Audit Firm and Four Accountants for Failures in Audits of China-Based Companies (Nov. 7, 2013), available at

[35] Press Release 2013-2, SEC Charges Two KPMG Auditors for Failed Audit of Nebraska Bank Hiding Loan Losses During Financial Crisis (Jan. 9, 2013), available at

[36] John J. Aesoph, CPA, et al., Exchange Act Release 78490 (Aug. 5, 2016), available at

[37] Press Release 2015-224, SEC Charges Executives for Defrauding Investors in Financial Fraud Scheme (Sept. 30, 2015), available at

[38] Press Release 2016-147, Accountant Suspended for Failing to Spot Fraud in Company Audit (July 22, 2016), available at

[39] See, e.g., Press Release 2015-196, Attorney and Auditors Settle Charges in Microcap Scheme Involving Purported Mining Companies (Sept. 18, 2015), available at

[40] See, e.g., Press Release 2015-245, SEC Announces Enforcement Results for FY 2015 (Oct. 22, 2015), available at

[41] Silberstein Ungar PLLC, et al., Exchange Act Release No. 77997 (June 6, 2016), available at

[42] Press Release 2015-178, SEC Charges Seattle-Area Hedge Fund Adviser With Taking Unearned Management Fees; Two Accountants Charged With Performing Deficient Audit of Fund (Sept. 4, 2015), available at; see also Raymon Holmdahl, CPA, et al., Exchange Act Release No. 75843 (Sept. 4, 2015), available at

[43] Press Release 2015-161, Miller Energy Resources, Former CFO, Current COO Charged With Accounting Fraud (Aug. 6, 2015), available at

[44] Miller Energy Resources, Inc., et al., Exchange Act Release No. 78809 (June 7, 2016), available at

[45] Press Release 2015-272, SEC: Grant Thornton Ignored Red Flags in Audits (Dec. 2, 2015), available at; Press Release 2015-184, SEC Charges BDO and Five Partners in Connection With False and Misleading Audit Opinions (Sept. 9, 2015), available at

[46] Bally Total Fitness, supra note 23.

[47] BDO USA, LLP, Exchange Act Release No 75862 (Sept. 9, 2015), available at

[48] Id.

[49] Id.

[50] Id.

[51] Id.

[52] Id.

[53] Press Release 2015-24, SEC Charges Chicago-Area Alternative Energy Company for Accounting and Disclosure Violations (Feb. 5, 2015), available at; Press Release 2014-269, SEC Announces Fraud Charges Against Two Executives in Scheme Involving Fake Occupants at Senior Residences (Dec. 3, 2014), available at

[54] Grant Thornton, LLP, Exchange Act Release No. 76536 (Dec. 2, 2015), available at

[55] Id.

[56] Arthur Young, 465 U.S. at 818.

[57] Press Release 2014-12, SEC Charges KPMG With Violating Auditor Independence Rules (Jan. 24, 2014), available at

[58] Id.

[59] Press Release 2014-136, SEC Charges Ernst & Young With Violating Auditor Independence Rules in Lobbying Activities (July 14, 2014), available at

[60] Press Release 2015-225, SEC Charges Two Grant Thornton Firms With Violating Auditor Independence Rules (Oct. 1, 2015), available at; Press Release 2015-137, SEC Charges Deloitte & Touche With Violating Auditor Independence Rules (July 1, 2015), available at

[61] Press Release 2014-272, SEC Sanctions Eight Audit Firms for Violating Auditor Independence Rules (Dec. 8, 2014), available at

[62] Press Release 2014-239, SEC Sanctions Florida-Based Auditor for Circumventing Rules (Oct. 24, 2014), available at

[63] Elliot R. Berman, CPA, et al., Exchange Act Release No. 77447 (Mar. 25, 2016), available at

[64] Press Release 2016-187, Ernst & Young, Former Partners Charged With Violating Auditor Independence Rules (Sept. 19, 2016), available at

[65] Ernst & Young LLP, et al., Exchange Act Release No. 78873 (Sept.19, 2016), available at (“Ernst & Young”).

[66] Id.

[67] Ernst & Young LLP, et al., Exchange Act Release No. 78872 (Sept. 19, 2016), available at

[68] Id.

[69] Id.

[70] Robert A. Waegelein, CPA, Exchange Act Release No. 78897 (Sept. 21, 2016), available at; Ernst & Young LLP, supra note 65.

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