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D. Murali

CHENNAI, Feb. 6

IT is often the grouse of many that petty offenders get thrashed even as those guilty of major blunders go free.

As if to prove this point, a recent study by The Washington Post revealed that the Securities and Exchange Commission (SEC) is much more likely to discipline auditors from smaller firms, rather than individuals from the Big Four who audit the majority of publicly-traded companies.

For the regulator, large firms remain "difficult targets" because chances of winning a case against them are meagre. But small public accounting firms are easy fry because they often lack the legal resources to fight any SEC action; therefore, it is easier to win a case against them.

The SEC enforcement record shows that in the fiscal year that ended September 30, the ratio between big and small (for enforcement actions) is 2:15. That is, for every Big Four accountant, there were 7 individual auditors from smaller firms who came under the fire of SEC enforcement action. The two auditors identified as working for big accounting firms received censure, a verbal reprimand, while more serious punishments such as barring from practice were reserved for the smaller firms.

In many cases, the findings show, the SEC acted against big accounting firms without identifying or punishing the individual accountants responsible for the goof-up. According to statistics, the agency took a record 598 enforcement actions, up 24 per cent from the year before.

That a biggie enjoys a different equation with Governments, Ministers and regulators is all too known worldwide. So, the SEC's weakness could well be seen as part of a universal problem. Thus, in spite of all the noise that went round about accounting fraud and error of epidemic proportions, the "Achilles' heel" has been to go soft on deep pockets. No wonder, elephants escape while ants get crushed.

An interesting inference from the multitude of cases is that small firms were more likely to commit "errors of incompetence", such as failing to detect accounting problems. The big ones displayed lapses of integrity, which goes to a subtler level and therefore, merits a more exemplary penalty.

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