The Public Company Accounting Oversight Board is angling to improve quality control over corporate audits by encouraging accountants to blow the whistle on financial reporting violations by their audit clients and by their own firms.
During a Nov. 18 meeting with the board's Standing Advisory Group, PCAOB staffers asked for suggestions on how to best develop "mechanisms that encourage 'whistle blowing'" by members of an audit team who spot financial reporting violations or other types of wrongdoing during an audit.
In a briefing paper supplied to members of the advisory panel, the PCAOB suggested that registered firms "could establish appropriate policies and procedures that encourage 'whistle-blowing'" -- a step designed to ensure that violations of laws, regulations, professional standards and even the firm's own "stated values or code of conduct" are "reported and corrected on a timely basis."
Measures outlined by board staffers to promote the reporting of such violations included ensuring "clear communication from firm leaders to all personnel regarding the methods for reporting complaints or allegations, including the provision of anonymity or confidentiality, if desired by the complainant."
The briefing paper also suggested that accounting firms might take additional steps to encourage whistle-blowing, including the adoption of "a clear policy that retribution or sanctions against complainants will not be tolerated," and a commitment to undertake a "thorough investigation of complaints and allegations" by a partner or other official "who is not otherwise involved in the situation being addressed."
Some members of the advisory panel, however, told the PCAOB that the board should do more than simply relying on accounting firms to encourage whistle-blowing within their own ranks.
Virginia attorney William M. Diefenderfer III suggested that the PCAOB create a "safety valve" for whistle-blowing accounting professionals by providing "a source for them to go to" if they aren't totally comfortable reporting allegations of wrongdoing to their own firm. Wayne Kolins, BDO Seidman's national director of assurance, agreed that audit team whistle-blowers should have a resource outside the firm's "operating function" for lodging complaints, and suggested that an "outside counsel" might serve that purpose. Ohio Public Employees Retirement System corporate governance officer Cynthia Richson told the PCAOB that the key to encouraging whistle-blowing by auditors is to establish "very strong protections against retaliation" by the firm, and suggested the creation of a three-member mediation panel to handle whistle-blower issues. Kolins, however, recommended relying on carrots rather than sticks to encourage audit team members to come forward with allegations of wrongdoing. He suggested providing rewards for whistle-blowers as part of the firm's compensation system -- an approach that he said has been used at BDO Seidman.
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