Washington (Oct. 1, 2003) -- The Public Company Accounting Oversight Board made it clear this week that audit firms it targets for investigation will be able to duck subpoenas by “taking the Fifth.”
That provision surfaced as part of a staff “clarification” about new rules governing procedures for investigating and disciplining accounting firms for violations of the Sarbanes-Oxley Act.
The rules, which were unanimously approved by the board on September 29, empower PCAOB to subpoena records from accounting firms under investigation, impose monetary penalties against SOX violators, and deny firms the right to audit public companies.
But in response to concerns raised by a number of leading audit firms, the board softened key provisions in the regulations that had drawn criticism, and clarified other language that had been attacked as unfair to accountants under investigation by PCAOB.
In one potentially significant clarification, the board stated that accounting firms and auditors who exercise their legal privileges – including any “valid assertion of the privilege against self-incrimination” under the Fifth Amendment – will not be deemed to be engaged in non-cooperation with a PCAOB subpoena simply because they exercised that right. But while accountants will be allowed to “take the Fifth” before the board, PCAOB Associate General Counsel Michael Stevenson explained that staff investigators will reserve the right to report any assertion of that Constitutional privilege to federal or state criminal authorities.
In another significant change from the original proposal, PCAOB rulemakers abandoned plans to subject accountants and CPA firms to disciplinary action for making a “material omission” in testimony before the organization. A number of accounting firms objected to that provision, arguing that it would place “an unfairly vague obligation on witnesses” at board hearings, Stevenson explained during a meeting of the group on Monday.
As a result, the staff agreed to drop the “material omission” standard in favor of a rule similar to the federal perjury statute which subjects witnesses to sanctions if they “knowingly made false declarations.”
PCAOB staffers also agreed to “significantly restructure” separate provisions of the proposed rule governing the board’s power to withhold privileged documents and other information from accounting firms under investigation.
Under the original proposal advanced by the board on July 28, PCAOB reserved the right to deny defendants access to a broad range of information.
-- Ken Rankin
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