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Congress May Need to Amend Sarbanes-Oxley for PCAOB

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By Michael Cohn
July 3, 2012

One of the proposals that drew comments at the Public Company Accounting Oversight Board’s roundtable meeting last Thursday on mandatory audit firm rotation was the idea of allowing the PCAOB to share its inspection reports directly with the audit committees.

Right now, that isn’t allowed to happen (see PCAOB Hears Further Debate over Audit Firm Rotation). As PCAOB chairman James Doty noted, “Congress took a different view” when it wrote the Sarbanes-Oxley law 10 years ago.

C. Brian Fox, CPA, founder and chief marketing officer of audit confirmation provider Confirmation.com, said in an interview after the panel discussion that he believes there eventually will be a proposal to Congress to allow the PCAOB to share its audit inspection reports with the audit committees. “I think the PCAOB would like to do so, but they probably feel their hands are tied,” he said.

However, the PCAOB has previously submitted proposals to Congress to make its disciplinary proceedings against auditing firms public, so there has been precedent for the board going to Congress. The Dodd-Frank Act of 2010 expanded the PCAOB’s ability to inspect auditors of broker-dealers, for example.

“What’s bad for the fraudster is good for the investor,” Fox told me. “If you look at audit firm rotation as one of many directions that the PCAOB could undertake, fraudsters would not like audit firm rotation, but it would be good for the investors.”

He noted that the PCAOB needed to hear the viewpoint of the fraudsters who cause the damage to investors.

“My mantra has been to think like a fraudster,” said Fox.

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