Wall Street’s top watchdog is warning that the market selloff and fears of a recession could encourage more companies to cook their books, and it is pressuring auditors to catch them, the Wall Street Journal reported. “The current economic environment is subject to significant uncertainties and, historically, that oftentimes leads to heightened fraud risk,” Paul Munter, acting chief accountant at the Securities and Exchange Commission, said in an interview. “So we are trying to be proactive and speak to the marketplace.” The warning comes as regulators increase their scrutiny of auditors. The audit regulator is getting tougher on rule-breaking accountants. Big fines for auditors are part of record monetary sanctions imposed by the SEC in the latest fiscal year. The SEC is concerned that auditors too often fail to respond adequately to red flags that point to possible financial chicanery, Mr. Munter said in a statement last month. Regulators’ inspections of audits “consistently identify areas of concern involving auditors’ application of due professional care and professional skepticism when considering fraud,” the statement said.
