Quick Hits
- The SEC is forming a new enforcement unit to combat fraud in accounting and financial reporting.
- The new unit signals the agency’s intent to heighten regulatory scrutiny of accounting, financial reporting, and auditing practices.
- Whistleblower information may play an important role in bolstering the Division of Enforcement’s efforts in this area.
The SEC announced it will establish a new unit within the Division of Enforcement to pursue accounting and financial reporting fraud cases, as well as general misconduct in the accounting and auditing areas. The Financial Reporting and Accounting Unit will be staffed by attorneys and accountants with expertise in financial reporting, accounting, and auditing in securities regulation.
Accounting and financial reporting misconduct includes the intentional manipulation, falsification, or omission of financial records to deceive investors, lenders, or regulators. For example, it could involve misrepresenting revenue, debt, expenses, or assets.
Key Takeaways
- The establishment of the new unit signals prioritization of these types of matters by the Division of Enforcement. Information from whistleblowers submitted via the SEC’s Office of the Whistleblower has been an important tool in enforcement actions and will likely bolster the division’s efforts in this area.
- Because of expected enhanced scrutiny in this area, companies may wish to ensure internal reporting systems are robust to capture internal reports related to accounting and financial reporting misconduct or fraud.
- Companies may wish to ensure management is trained in identifying and appropriately escalating concerns related to accounting and financial disclosures.
- Standard practices include making sure to communicate to an internal reporter that the organization is taking their report seriously. Many times, employees report to a regulator when they believe their concerns have not been heard or taken seriously internally.
Ogletree Deakins’ Whistleblower and Compliance Practice Group and Financial Services Industry Group will continue to monitor developments and will post updates on the Employment Tax and Ethics/Whistleblower blogs as additional information becomes available.
This article and more information on how the Trump administration’s actions impact employers can be found on Ogletree Deakins’ Administration Resource Hub.
Jane A. Norberg is a shareholder in Ogletree Deakins’ Washington, D.C., office.
This article was co-authored by Leah J. Shepherd, who is a writer in Ogletree Deakins’ Washington, D.C., office.
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