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Determinants of the Severity of Legal and Employment Consequences for CPAs Named in SEC Accounting and Auditing Enforcement Releases

Author

Listed:
  • Daniella Juric

    (RMIT University)

  • Brendan O’Connell

    (RMIT University)

  • Michaela Rankin

    (Monash University)

  • Jacqueline Birt

    (University of Queensland)

Abstract

This study investigates the impact of Securities and Exchange Commission (SEC) enforcement actions on individuals holding Certified Public Accountant (CPA) accreditation. While prior research has investigated both the characteristics of companies that have been investigated by the SEC and litigation against audit firms, it has not addressed the ways in which SEC investigations impact CPAs. Using a sample of 262 CPAs, we find that the most common CPA breach was associated with overstating revenues/income or earnings. The study finds serious consequences for CPAs in terms of employment restrictions and SEC actions, incorporating suspension, which is often permanent. We find that the primary factors relating to the severity of actions by the SEC is whether the CPA intentionally breached the professional code of conduct, the age of the CPA, whether the CPA is still a member of the AICPA with CPA status and whether the CPA was operating as an external auditor or in a corporate accounting role. Our findings have implications for accounting practitioners, the AICPA and boards of directors.

Suggested Citation

  • Daniella Juric & Brendan O’Connell & Michaela Rankin & Jacqueline Birt, 2018. "Determinants of the Severity of Legal and Employment Consequences for CPAs Named in SEC Accounting and Auditing Enforcement Releases," Journal of Business Ethics, Springer, vol. 147(3), pages 545-563, February.
    • Handle: RePEc:kap:jbuset:v:147:y:2018:i:3:d:10.1007_s10551-015-2956-y
    DOI: 10.1007/s10551-015-2956-y
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    Cited by:

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    2. Abdullah Al-Moshaigeh & Denise Dickins & Julia L. Higgs, 2022. "The Influence of Political Regime on State-Level Disciplinary Actions of CPAs Sanctioned by the PCAOB," Journal of Business Ethics, Springer, vol. 176(2), pages 325-340, March.
    3. Sirui Wu & Guangming Gong & Xin Huang & Haowen Tian, 2022. "The Interaction Between Suppliers and Fraudulent Customer Firms: Evidence from Trade Credit Financing of Chinese Listed Firms," Journal of Business Ethics, Springer, vol. 179(2), pages 531-550, August.
    4. Chang, Jui-Chin & Sun, Huey-Lian & Tang, Alex P., 2021. "Effect of SEC enforcement actions on forced turnover of executives: Evidence associated with SOX provisions," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 277-287.
    5. Prabashi Dharmasiri & Soon-Yeow Phang & Ashna Prasad & John Webster, 2022. "Consequences of Ethical and Audit Violations: Evidence from the PCAOB Settled Disciplinary Orders," Journal of Business Ethics, Springer, vol. 179(1), pages 179-203, August.
    6. Stefano Azzali & Tatiana Mazza & Fernanda Alberto, 2021. "Effects of disclosed audit sanctions on audit firm’s market share in Italy and Spain," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(S1), pages 2477-2505, April.

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    More about this item

    Keywords

    Accounting and auditing enforcement releases (AAERs); CPAs; Institutional theory; SEC litigation; Corporate fraud;
    All these keywords.

    JEL classification:

    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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