Washington (Jan. 29, 2003) -- More than half of all enforcement actions for financial reporting and disclosure violations filed by the Securities and Exchange Commission during a five-year period involved improper revenue recognition -- and in most enforcement cases, members of senior management were held accountable, according to a Commission study.

From July 31, 1997 though July 30, 2002, the SEC filed 515 enforcement actions for financial reporting and disclosure violations arising out of 227 Division of Enforcement investigations. During that time, the SEC filed a total of 2,508 enforcement actions, arising out of 1,390 investigations. Of 227 enforcement matters, 126 involved improper revenue recognition, 101 enforcement matters involved improper expense recognition, 23 involved improper accounting for business combinations, while 137 involved other accounting and reporting issues. The SEC noted that most of the 227 enforcement matters involved more than one type of improper conduct.

And in most cases, members of issuer senior management were held responsible for the accounting violations, with 157 of the 227 enforcement matters involving charges against at least one senior manager. Charges were brought against 75 chairmen of the board, 111 chief executive officers, 111 presidents, 105 chief financial officers, 21 chief operating officers, 16 chief accounting officers, and 27 vice presidents of finance.

The Commission said it brought charges against 18 auditing firms and 89 individual auditors. The violations by auditors weren’t limited to any particular size of firm, and resulted largely from auditors failing to gain sufficient evidence to support the issuer’s accounting, failing to exercise the appropriate level of skepticism in responding to red flags, and failing to maintain independence.

The report can be viewed here.

-- Electronic Accountant Newswire Staff


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