Journal of Law, Finance, and Accounting > Vol 3 > Issue 2

The SEC’s Enforcement Record against Auditors

Simi Kedia, Rutgers Business School, USA, , Urooj Khan, Columbia Business School, USA, , Shiva Rajgopal, Columbia Business School, USA,
Suggested Citation
Simi Kedia, Urooj Khan and Shiva Rajgopal (2018), "The SEC’s Enforcement Record against Auditors", Journal of Law, Finance, and Accounting: Vol. 3: No. 2, pp 243-289.

Publication Date: 21 Dec 2018
© 2018 S. Kedia, U. Khan and S. Rajgopal
Auditing,  Financial reporting,  Law and economics,  Regulation


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In this article:
1. Introduction 
2. Background 
3. Research Design 
4. Data 
5. Reputation based Enforcement 
6. Other Enforcement Activity against Auditors – PCAOB Actions 
7. Conclusions 
A. Auditors of Corporations that are Subject to SEC Enforcement Actions in the Sample 
B. Auditors that are Named as Defendants in SEC Enforcement Actions 
C. Description of the Violations Charged by the SEC 
D. Description of Penalties Imposed by the SEC 


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.