The Top 3 SEC and PCAOB Enforcement Triggers (That No One Talks About)

You’ve heard of the big accounting scandals (Enron, WorldCom, Wirecard). But the real auditor enforcement risk today comes from much smaller, harder-to-detect issues:

1. Revenue Recognition Errors

Recognizing revenue too early, too late, or without enough evidence is the #1 area for restatements—and the top target for PCAOB sweeps.

• McKesson: PCAOB fine for inadequate procedures to test revenue cut-off at year end.
• Salesforce: SEC investigation into aggressive revenue recognition around contract renewals.

2. ICFR Failures

Auditors are being fined for not testing management’s controls thoroughly enough—even when no fraud is found.

• GE: SEC investigation after auditor missed a material weakness in ICFR.
• PwC: PCAOB penalty for failing to identify control deficiencies in a major bank audit.

3. Partner Rotation and Independence

Failure to rotate partners, or having too close of a relationship with a client, is now an automatic red flag.

• Deloitte: PCAOB sanction for not rotating lead engagement partners on schedule.
• KPMG: SEC administrative action for audit quality partner providing non-audit services.

How the SEC and PCAOB Are Escalating Enforcement

It’s not just fines. Auditors are now facing:

Legal Pulse: Key Statistics

95%Plea Bargaining

of criminal cases in NJ are resolved through plea agreements

Source: NJ Courts Statistics

92%Expungement Success

approval rate for properly filed expungement petitions in NJ

Source: NJ Courts 2024

Statistics updated regularly based on latest available data

5 Immediate Steps Auditors Must Take to Avoid Becoming the Next Enforcement Headline

1. Review Every Engagement Letter for Scope Creep
   Many enforcement actions start when auditors perform extra services (like consulting or tax) outside of their engagement scope. This blurs independence and triggers investigations.
2. Document, Document, Document
   If it’s not in writing, it didn’t happen. PCAOB and SEC staff are now demanding complete documentation of every key audit decision, including why you DIDN’T test a certain area.
3. Proactively Communicate Issues with Audit Committees
   Don’t wait for the SEC to ask questions. If you find an error, control weakness, or misstatement, report it to the audit committee immediately and document the response.
4. Conduct Annual Independence Reviews
   Use a third-party or internal compliance team to conduct reviews of all partner relationships, non-audit services, and fee arrangements for every public company audit.
5. Prepare a Response Plan for Regulatory Inquiries
   Have a written plan for how to respond to SEC subpoena, PCAOB inspection requests, and client restatement notifications. Know who will be involved, who calls outside counsel, and what documents to gather first.

What to Do If You Receive an SEC or PCAOB Inquiry Letter

Don’t panic—and don’t respond without legal guidance. Here’s what to do:

• Preserve all audit documentation: Notify IT to preserve all emails, notes, and workpapers.
• Notify your firm’s general counsel: Escalate the issue immediately.
• Don’t talk to investigators without counsel present: Even innocent conversations can be misinterpreted.
• Prepare a written chronology: Document the audit process, who was involved, and what was tested.

Why You Need Experienced SEC Defense Counsel

Auditor enforcement actions often start slowly, with a simple inquiry or PCAOB inspection. But they can quickly escalate to career-ending sanctions or criminal investigations.

Spodek Law Group is a former DOJ trial lawyers, SEC enforcement attorneys, and defense counsel who have successfully resolved dozens of SEC and DOJ investigations involving public accounting firms, auditors, and CFOs.

• We know how to respond to SEC subpoenas and PCAOB inspections
• We understand the accounting language and documentation requirements
• We have experience negotiating favorable settlements

Don’t wait until you’re named in a public enforcement release. If you are under investigation by the SEC or PCAOB, contact us immediately for a confidential consultation.

The Bottom Line

The days of “routine” audits and minor restatements are over. The SEC and PCAOB are holding auditors personally responsible for every error, judgment call, and control deficiency. The only way to protect yourself and your firm is to be proactive, over-document, and have a clear response plan in place.

Stay vigilant, stay compliant, and stay protected.

Contact Us Today

If you are facing an SEC or PCAOB inquiry, or want to proactively protect your firm, contact Spodek Law Group for a confidential consultation. Call us at 212-300-5196 or reach out online to speak with our legal team.