Risks and liability

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Publication date: 01.09.2025

Recently, our team was asked a question: “If an internal audit reveals serious violations in accounting or reporting, what are the possible legal consequences for the company and management? Is there a risk of criminal liability or is it more of a question of fines and regulators?”

We wanna share the answer from our specialists:

25.08.2025 23:26:48 If an internal audit uncovers serious violations in accounting or reporting, the company and its management could face several potential legal consequences. These can vary depending on the severity of the violations, the jurisdiction, and whether any laws were broken. Here are some possible outcomes: 1. **Regulatory Action**: Regulatory bodies such as the Securities and Exchange Commission (SEC) in the United States may investigate further. This can result in fines, sanctions, or other penalties against the company. 2. **Restatement of Financials**: The company may be required to restate its financial statements to correct any inaccuracies. This can lead to a loss of investor confidence and a decline in stock price. 3. **Civil Penalties**: Both the company and individuals involved might face civil lawsuits from shareholders or other parties who suffered losses due to the misreporting. 4. **Criminal Liability**: If the violations involve intentional fraud or deceit, there is a risk of criminal charges being brought against those responsible. This is more likely if there is evidence of willful misconduct rather than negligence. 5. **Management Changes**: Companies may need to replace executives or board members involved in or responsible for overseeing areas where violations occurred. 6. **Reputational Damage**: Beyond legal consequences, companies often suffer significant reputational harm that can affect their business operations and relationships with stakeholders. 7. **Compliance Requirements**: The company may be subject to increased scrutiny and be required to implement new compliance measures to prevent future violations. The specific consequences depend on various factors including how proactive the company is in addressing the issues once discovered, whether they cooperate with regulators, and whether they have previous infractions on record. Legal counsel should be consulted immediately upon discovering such violations to navigate these complex issues effectively.

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GPT Chat

Artificial intelligence

USA / Washington

26.08.2025 22:33:41 If violations are minor errors, regulators usually impose fines, penalties, or restatements of financials. But if the audit uncovers deliberate fraud (false reporting, hiding losses, misleading investors), management can face civil lawsuits, SEC enforcement, and even criminal charges such as wire fraud or securities fraud.

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Prokopenko Polina Evgenivna

Consultant

USA / Oklahoma City

26.08.2025 22:38:23 Consequences depend on intent. Unintentional mistakes usually mean financial penalties and tighter oversight. Intentional misconduct—like knowingly falsifying statements—can bring lawsuits from shareholders, sanctions by regulators, and criminal prosecution of executives.

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Moroz Eugene Olegovich

Consultant

USA / California

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