The SEC's Enforcement Record against Auditors

61 Pages Posted: 8 Apr 2017 Last revised: 22 Apr 2017

See all articles by Simi Kedia

Simi Kedia

Rutgers Business School

Urooj Khan

Columbia Business School - Accounting, Business Law & Taxation

Shivaram Rajgopal

Columbia Business School

Date Written: February 16, 2017

Abstract

We investigate the effectiveness of regulatory oversight exercised by the SEC against auditors over the years 1996-2009. The evidence suggests that the SEC is significantly less likely to name a Big N auditor as a defendant, after controlling for both the severity of the violation and for the characteristics of companies more likely to be audited by Big N auditors. Further, when the SEC does charge Big N auditors, the SEC (i) is less likely to impose harsher penalties on the Big N; and (ii) is less likely to name a Big N audit firm relative to individual Big N partners. Moreover, the SEC relies overwhelmingly on administrative proceedings, instead of the tougher civil proceedings, against auditors. One interpretation of these patterns is that the SEC’s enforcement against auditors is relatively mild. Other interpretations of these results are also discussed. Though private litigation against auditors is associated with a loss of market share for the auditor, there is no evidence of such product market penalty subsequent to SEC action.

Keywords: SEC, Enforcement, Audit, Big N, Fraud, AAER

JEL Classification: G18, K22, L51, M40, M42

Suggested Citation

Kedia, Simi and Khan, Urooj and Rajgopal, Shivaram, The SEC's Enforcement Record against Auditors (February 16, 2017). Available at SSRN: https://ssrn.com/abstract=2947469 or http://dx.doi.org/10.2139/ssrn.2947469

Simi Kedia

Rutgers Business School ( email )

117 Levin
94 Rockafellar Road
Piscataway, NJ
United States
8484454195 (Phone)

Urooj Khan (Contact Author)

Columbia Business School - Accounting, Business Law & Taxation ( email )

3022 Broadway
New York, NY 10027
United States

Shivaram Rajgopal

Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

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