The US Securities and Exchange Commission (SEC) has released research looking at the role of external auditors in cases of fraudulent financial reporting investigated by the regulator.

An Analysis of Alleged Auditor Deficiencies in SEC Fraud Investigations: 1998-2010 identified 87 sanctions against external auditors in SEC fraud investigations involving publicly traded companies during a 13-year period.

SEC's analysis shows that 35 of the audits were carried out by Big Four or other global firms, including nine undertaken by Arthur Andersen. Of the remainder, 46 were handled by mid tier or national firms, while the SEC identified six 'bogus audits' where no meaningful audit procedures were performed.

Most of the companies being audited were small, with average revenues and assets under $40m (£26m), and were concentrated in four key industries (over 40% were in financial services/insurance, manufacturing, telecomms or consumer goods manufacturing).

The primary deficiencies cited by the SEC related to audit evidence (73% of cases); due professional care (67%); professional scepticism (60%); management representations (54%); and the audit opinion (47%).

The cases typically involved multiple alleged deficiencies, with 58 citing more than one of the top three deficiencies, and 42 citing the top three deficiencies. The most common deficiencies were similar for both national firms and non-national firms.

Cindy Fornelli, executive director of the Center for Audit Quality (CAQ), said: 'I believe the fact that SEC allegations of financial reporting frauds are rare, albeit serious, events and that the large majority do not involve sanctions against public company auditors is noteworthy. It is important that public company auditors and other members of the financial reporting supply chain take their responsibilities in this regard seriously and commit to seizing opportunities for improvement.'