A pair of influential senators have re-introduced legislation to make the Public Company Accounting Oversight Board’s disciplinary proceedings against auditing and accounting firms public.

Senators Jack Reed, D-R.I., and Chuck Grassley, R-Iowa, re-introduced the PCAOB Enforcement Transparency Act on Friday. They said the legislation would protect the investing public, improve the oversight of corporate auditing, and ensure that the financial reports of publicly traded companies are accurate and reliable. The Reed-Grassley bill would make PCAOB disciplinary proceedings public to bring auditing deficiencies at the firms or the companies they audit to light in a timely manner and help deter violations.

The PCAOB has been lobbying Congress to make its disciplinary proceedings against firms public, arguing that auditing firms are able to drag out the proceedings for years while the public is unaware of the serious problems uncovered by the PCAOB (see PCAOB Drafts Bill to Make Disciplinary Proceedings Public). Reed and Grassley first introduced their in the previous congressional term, in 2011 (see Senate Bill Would Make PCAOB Disciplinary Proceedings Public).

The Sarbanes-Oxley Act that created the PCAOB in 2002 required PCAOB’s disciplinary proceedings to be kept confidential through charging, hearings, initial decision and appeal. The Reed-Grassley bill would amend Sarbanes-Oxley by making PCAOB hearings and all related notices, orders, and motions, open and available to the public unless otherwise ordered by the board. The PCAOB procedure would then be similar to SEC Rules of Practice for similar matters, where hearings and related notices, orders, and motions are open and available to the public.

“Transparency brings accountability,” Grassley said in a statement. “This legislation levels the playing field between auditors reviewed by the SEC and auditors reviewed by the PCAOB. Currently, PCAOB proceedings are secret while SEC proceedings are not. The secrecy provides incentives to bad actors to extend the proceedings as long as possible so they can continue to do business without notice to businesses about potential problems with a particular auditor. This bill ends the secrecy and brings the kind of transparency that adds accountability to agency proceedings.”

The PCAOB oversees more than 2,400 auditing firms registered with the board, as well as the thousands of audit partners and staff who contribute to a firm’s work on each audit. The lack of transparency surrounding disciplinary proceedings under current law can provide unscrupulous firms with an incentive to litigate cases in order to continue to shield conduct from the public, the senators pointed out. For example, an accounting firm that was subject to a disciplinary proceeding issued no fewer than 29 additional audit reports on public companies during the course of the proceedings, and those companies and their investors were completely unaware there was a potential auditing problem with this accounting firm. Before the firm was expelled from public company auditing, it issued those audit reports, knowing it was subject to disciplinary proceedings, but investors were denied this information.

“The PCAOB is responsible for ensuring that auditors of public companies meet the highest standards of quality, independence, and ethics,” said Reed. “Reliable financial reporting is vital to the health of our economy and we must take the legislative steps necessary to enhance transparency in the PCAOB’s enforcement process. Currently, Congress, investors and others are being denied critical information about an auditor’s disciplinary process. Investors and companies alike should be aware when the auditors and accountants they rely on have been charged or sanctioned for violating professional auditing standards.”

PCAOB’s closed proceedings run counter to the public enforcement proceedings of other regulators, the senators contended, including the SEC, the Labor Department, the Federal Deposit Insurance Corporation, the Commodity Futures Trading Commission, the Financial Industry Regulatory Authority and others. Nearly all administrative proceedings brought by the SEC against public companies, brokers, dealers, investment advisers and others are open, public proceedings.

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