The Financial and Market Effects of the SEC's Accounting and Auditing Enforcement Releases

This paper explores three questions related the SEC's accounting enforcement program: (1) what types of accounting and auditing motivate enforcement actions, (2) what are the consequences of investigations on targets' financial statements, managers, and auditors, and (3) how do investors and other market agents view the SEC's actions? The SEC enforcement program, which consists of investigations and subsequent injunctive actions or administrative proceedings against offending registrants and auditors, is designed to concentrate on particular problem areas and anticipate emerging problems (SEC [1989, p. 1]). The potential for SEC enforcement actions provides incentives for corporate officers and independent CPAs avoid unacceptable practices whose effective prosecution is