SEC Enforcement Director Andrew J. Ceresney outlined the legal and regulatory framework governing SEC enforcement actions against auditors. In an address on accounting liability before the American Law Institute Conference, Mr. Ceresney examined the history and context of Rule 102(e) of the SEC Rules of Practice, under which "a significant number of . . . accounting-related enforcement proceedings are instituted." The Director described "the current landscape" of audit enforcement actions and highlighted several systemic issues. He offered the following observations:
- "before engaging with an audit client, auditors should ensure that the firm and its assigned personnel have sufficient capacity and competence to audit the client according to professional standards";
- "audits need to be properly planned and executed, with significant risks identified and addressed through adequate audit procedures";
- "auditors need to exercise appropriate professional skepticism, gather sufficient appropriate audit evidence, adequately document work, and, particularly when there are red flags, require more sufficient evidential matter than representations from management";
- "auditors should consult internally when particularly troublesome issues arise"; and
- "firms must have robust monitoring processes and training on independence issues."
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