The Public Company Accounting Oversight Board has written to Congress with a draft bill that would amend the Sarbanes-Oxley Act to allow it to make its disciplinary hearings of accounting firms and auditors public.

The board said last month that it planned to ask Congress to consider such a change (see PCAOB Wants to Make Disciplinary Hearings Public). PCAOB Chairman Daniel Goelzer has reportedly sent a letter to leaders of the Senate Banking Committee and the House Financial Services Committee with draft language repealing the requirement in Sarbanes-Oxley that disciplinary proceedings remain private and confidential, according to The Wall Street Journal. A PCAOB spokesperson confirmed the existence of the letter to WebCPA.

Goelzer argued that the secretive process encourages firms and auditors to drag out the proceedings for years and consume unnecessary staff time while the public remains unaware of problems with the firms or the companies they have audited. A trio of recent cases has consumed 17,000 hours of staff time. The Securities and Exchange Commission, in contrast, makes its enforcement hearings and injunctive actions public, the PCAOB said.

"Adjudicatory proceedings to determine whether an auditor or audit firm should be sanctioned for violating applicable rules or standards are an important component of the Board's oversight authority," Goelzer wrote. "However, unlike the disciplinary proceedings of other, comparable regulators, the Board's cases are nonpublic at least until they are appealed to the SEC."

Goelzer noted that decisions to commence disciplinary proceedings are not made lightly, and that the PCAOB brings such proceedings "only after a thorough, nonpublic investigation and full consideration of the views and arguments of the potential respondent."

"The nonpublic nature of Board disciplinary proceedings has serious adverse consequences for the investing public, audit committees, the auditing profession, the Board, and other interested parties, such as Congress," he wrote. "First, the public is denied access to important information regarding PCAOB cases. During the course of the proceeding, investors, audit committees, and other interested parties are kept in the dark about a respondent's alleged misconduct - no matter how serious."

He added that even after the PCAOB has found sufficient cause to initiate formal proceedings and a disinterested hearing officer has found that the alleged violations occurred, the matter may still remain unknown to the public at least until the case is appealed to the SEC. "As a result, investors are unaware that companies in which they may have invested are being audited by accountants who have been charged, even sanctioned, by the Board," said Goelzer.

He described the non-public proceedings against one firm, Gately & Associates, which issued 29 additional audit reports on public company financial statements between the commencement of the PCAOB's proceeding and the public disclosure of the board's charges, which did not occur until the SEC affirmed the PCAOB's decision to expel the Gately firm from public company auditing. Over two years elapsed between the filing of the PCAOB's case and the public disclosure of the sanctions. During that time, the firm continued to pursue its public company audit practice while it litigated the board's case in private.

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