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In September 2013, the U.S. Securities & Exchange Commission (SEC) announced charges against three auditors for "violating federal securities laws or failing to comply with U.S. auditing standards during their audits and reviews of financial statements for publicly traded companies." The charges came about as part of Operation Broken Gate, an initiative by the SEC to provide tighter oversight of individuals it considers to be the " gatekeepers" for protecting investors by helping ensure fair financial presentation and disclosure by public companies.
Subsequent public statements from SEC officials, including SEC Chair Mary Jo White, indicate that the SEC's oversight of those responsible for providing assurance of the accuracy of disseminated public company financial information will become significantly more stringent and encompassing. It's also clear that this initiative promises closer scrutiny, not only of auditors but of all parties who bear fiduciary responsibility as the gatekeepers of fair public company financial reporting- including audit committees, CEOs, CFOs, and other responsible parties within public companies.
The reasons for the initiative aren't known. After the Bernie Madoff scandal, the SEC was criticized for neglecting to protect the many investors who suffered massive losses, and Operation Broken Gate could be an effort to prevent further large-scale frauds. Another possibility is the consolidation of the largest accounting firms and the mistaken perception of some that the Big 4 public accounting firms are simply "too big to fail"-and Operation Broken Gate is a statement that no audit firm, regardless of size, is to be overlooked. Whatever the motivation, the impact will extend beyond auditors, and understanding the scope of the SEC's enforcement initiative and increased level of scrutiny will help companies anticipate possible areas of difficulty and plan strategies to help ensure they-and their auditors-don't run afoul of the SEC.
Expect Increased Enforcement
Describing the SEC's enforcement program in an October 2013 speech, White stated her conviction that "investors in our markets want to know that there is a strong cop on the beat-not just someone sitting in the station house waiting for a call, but patrolling the streets and checking on things...They .They want someone who understands that even the smallest infractions have victims." She further noted that in order to achieve that level of SEC enforcement surveillance, "It is...