SEC communications to the independent auditors: An analysis of enforcement actions

• Published in: Journal of accounting and public policy 1992, Vol.11 (4), p.297-330
• Main Authors: Campbell, David R., Parker, Larry M.
• Format: Article
• Language: English
• Subjects: Accounting firms; Auditing standards; Audits; Financial accounting; Financial reporting; Fraud; SEC accounting policies; SEC regulations; Tax audits; Violations
• ISSN: 0278-4254; 1873-2070
• DOI: 10.1016/0278-4254(92)90002-F

All 415 SEC releases issued between the end of 1972 and the end of 1989 were analyzed to clarify the SEC's philosophy of independent auditing and to document the violations of generally accepted auditing standards (GAAS) reported in the releases. Among the findings are 1) the SEC consistently concluded that the primary purpose of an independent audit is to enhance the efficiency of the capital markets and help protect the investing public by providing reasonable assurance concerning the integrity of the financial statements and related disclosures; 2) the SEC attributed many independent audit failures to questionable independent auditor judgement in adhering to professional standards, most often because of insufficient gathering of audit evidence due to over-reliance on management representations; 3) the large majority of cases in which the SEC associated the auditor with fraudulent financial reporting (usually constructive fraud) involved smaller audit firms; 4) the large majority of cases of management fraud in which the auditors were deceived by clients involved large audit firms. In the final section of this paper, we discuss the influence of enforcement releases on independent audit standard setting and possible implications for the audit profession in the future.