Securities and Exchange Commission Announces Establishment of New Financial Reporting and Accounting Unit in Enforcement Division

On August 5, the Securities and Exchange Commission (SEC) announced the formation of the Financial Reporting and Accounting Unit, a new specialized unit with the Division of Enforcement. The new unit will focus on pursuing accounting and financial reporting fraud cases and misconduct in the accounting and auditing professions. The announcement comes approximately four months after reports that the SEC was forming a group to focus on misconduct within the auditing profession and potential violations of the Sarbanes-Oxley Act of 2002.

In announcing the Financial Reporting and Accounting Unit, Director of Enforcement David Woodcock stated that the new unit “expands on the Division’s current and historical efforts to crack down on bad actors in the accounting and auditing profession” and “will be critical” in the SEC’s “efforts to pursuing financial reporting fraud, as well as accounting and auditor misconduct more generally.”

The SEC’s renewed emphasis on financial reporting and accounting reflects Chairman Paul Atkins’ intention to return the SEC to its “core mission” and to protect investors and strengthen market integrity by focusing on cases “that inflict the greatest harm,” such as fraud and abuses of trust.

Background of SEC Enforcement Involving Financial Reporting and Accounting

The SEC’s focus on auditors, accounting, and financial reporting has ebbed and flowed for nearly three decades. In 1998, Chairman Arthur Levitt announced an initiative to combat “earnings management,” which he described as “a game among market participants” to “satisfy consensus earnings estimates and project a smooth earnings path.” The result was an increase in financial fraud enforcement actions. In 2013, the SEC announced the creation of the Financial Reporting and Audit (FRAud) Task Force “dedicated to detecting fraudulent or improper financial reporting” and “other accounting frauds.” Current Enforcement Director David Woodcock served as the Chairman of the 2013 FRAud Task Force. The FRAud Task Force developed a new technological tool known as the Accounting Quality Model (also known as the RoboCop) to identify accounting fraud, which led to the Corporate Issuer Risk Assessment (CIRA) program. Concurrent with the 2013 FRAud Task Force, the SEC announced an initiative called Operation Broken Gate, which sought to hold auditors accountable and ensure audit quality. Shortly after announcing Operation Broken Gate, the SEC charged three auditors with serious deficiencies in their audits, such as failure to conduct engagement quality reviews in compliance with Public Company Accounting Oversight Board (PCAOB) standards. Then, in 2016, the SEC charged a company and former executive with inflating financial results to meet revenue projections and charged another company with failures relating to internal controls over financial reporting.

More recently, however, the SEC’s focus on accounting and auditors has declined precipitously. Combined SEC and PCAOB enforcement against auditors reportedly declined 33% in 2025, and overall accounting and auditing enforcement actions in 2025 reportedly fell to their lowest level in nine years. The new Financial Reporting and Accounting Unit and a significant recent accounting enforcement action from February 2026 could signal a return to more — and more vigorous — enforcement in this area.

Looking Ahead

The SEC has indicated that the new Financial Reporting and Accounting Unit will provide the dedicated expertise, capacity, and focus to pursue accounting and financial reporting fraud and will consist of attorneys and accountants with specialized skills related to financial reporting, accounting, and auditing. Based on experience with prior, similar groups and task forces, we expect the new enforcement unit to focus on accounting fraud, financial reporting, and audit quality, including compliance with the Sarbanes-Oxley Act of 2002. We also expect that the Financial Reporting and Accounting Unit will use and develop sophisticated tools for detecting and investigating financial reporting and accounting misconduct. And, as in the past, we anticipate that the Financial Reporting and Accounting Unit will investigate a variety of issues, including accounting reserves, revenue recognition, audit committees and the role of auditors, valuations, internal controls over financial reporting, disclosure controls, and auditor misconduct.

The SEC’s press release establishing the Financial Reporting and Accounting Unit did not describe how it will interact with the PCAOB, which enforces professional standards and rules governing audits of public companies and broker-dealers. We anticipate that the new enforcement unit likely will supplant PCAOB enforcement.