Now that its agenda is no longer driven by those same factors, financial reporting and disclosure have returned to the top of the SEC's enforcement agenda.And there is every reason to believe the SEC will continue to focus on this area in the near term. The first notable development in the last year is that, no matter how you count them, there has been a sharp increase in the number of actions filed over the past three years.There were no Enron-level cases, but the increase in the number of cases and the willingness to bring smaller ones shows the agency's appetite in this area.Although cases often cut across different areas of accounting, we have divided the discussion between accounting-focused cases (which include revenue and expenses and asset valuations) and disclosure cases. The SEC's bread and butter has always been cases involving improper accounting. One aspect of the revenue and expense cases worth noting is that changing an initial accounting analysis creates potentially problematic evidence, regardless of the justifications for the changes.
We might expect this trend of more relatively smaller actions to continue in part because the number and average size of restatements themselves are down sharply. Another clear trend is the very public focus on bringing cases against individuals.
We will also discuss where things might be headed in the future and actions that companies, directors, and officers can take to minimize the likelihood of becoming embroiled in an investigation.
The last year has demonstrated that the SEC is as focused on financial reporting and issuer disclosure violations as it has been in many years.
How far the SEC will go in the space remains to be seen, but at some point the Commission may need to address its long-standing policy not to use the books-and-records and internal controls provisions to expose companies and individuals to enforcement action "as a result of technical and insignificant errors in corporate records or weaknesses in corporate internal accounting controls." Some other developments outside enforcement are also worth mentioning for 2015.
The most notable is the United States Supreme Court's decision in Omnicare, Inc. Laborers District Council Construction Industry Pension Fund, which set out rules for determining whether a statement of opinion constitutes a material misstatement or omission under § 11 of the Securities Act of 1933.