August 08, 2016 Articles

Federal Securities Regulators' Enforcement Focus Turns to "Gatekeepers"

Tips on how audit professionals can mitigate the risk of enforcement proceedings

by Eliot T. Burriss and Nicole Figueroa

Accountant and auditor liability issues continue to be a focus for the Securities and Exchange Commission (SEC) and Public Company Oversight Board (PCAOB). Among the many challenges faced by audit firms in this complex regulatory environment, section 10A of the Securities and Exchange Act of 1934 remains a particularly strong area of SEC and PCAOB focus. Since 2015, the SEC and the PCAOB have brought dozens of cases alleging section 10A violations and sanctioned numerous public accounting firms for such violations. The penalties imposed by these regulators have included censure, civil penalties, and limitations on the right to practice on behalf of public companies.  

As discussed below, section 10A requires auditors to implement procedures designed to detect illegal acts and, if such acts are detected, to ensure that the company‚Äôs management and audit committee are adequately informed on those matters and take appropriate remedial measures when necessary. While the objectives of section 10A obligations may seem straightforward, compliance can pose considerable challenges in practice. This article outlines the requirements of section 10A and presents practical considerations for situations that may arise in a section 10A investigation. It is meant as a guide and is not exhaustive, as every investigation is different. 

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