Last year saw a rise in accounting-driven federal class action lawsuits, according to a new report from Big Four firm PwC.
The increase was reflected in both the number of accounting-related class actions (53 in 2014 versus 46 in 2013) and as a percentage of overall federal class actions (31 percent in 2014, up from 29 percent). However, both 2014 and 2013 were improvements over 2010-2012, when between 35 and 40 percent of class actions were accounting related.
The report, Coming into Focus: 2014 Securities Litigation Study, suggested that the wave of securities litigation prompted by the financial crisis of 2008 has largely played itself out, and that class actions are now driven largely by accounting enforcement actions from regulators, and their “focus on detecting and prosecuting various forms of improper financial reporting.”
“Potential accounting irregularities or inadequate disclosures, no matter how small, may catch the attention of regulators, who are increasingly seeking clarification from companies — or, if considered significant, are even opening investigations to determine if the identified issue is indicative of a larger problem,” the report said.
In terms of specific accounting issues, internal controls were cited in 58 percent of the 53 class actions, and revenue recognition in 38 percent.
The report also noted several emerging issues that companies should pay attention to, including heightened enforcement of anti-corruption statutes, the rise in cyber-breaches, and new complexities in financial markets.
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