PCAOB Pushes for Public Proceedings against Auditors

The Public Company Accounting Oversight Board is continuing to prod officials in Washington for the power to make public its disciplinary proceedings against auditing firms and auditors.

In a January 11 report summary posted to its Web site on Thursday, the PCAOB’s Office of Internal Oversight and Performance Assurance reported to Securities and Exchange Commission Chair Mary Schapiro on how its enforcement and investigation program had been hampered by the inability to make its disciplinary proceedings public.

“In the years since Sarbanes-Oxley passed, the PCAOB has built an active enforcement program, but unfortunately for investors, audit committees, the bar, and the audit profession itself, it takes place largely behind the scenes,” said the report. “DEI [the PCAOB’s Division of Enforcement and Investigations] conducts rigorous investigations before recommending that the Board file any complaint. But when the Board does determine that the facts merit institution of a disciplinary proceeding, it will not be public. Nor will a Board decision to impose a sanction be public, in most cases, until any appeal to the SEC is exhausted.”

The report noted that the SEC at one time had a similar regime of non-public disciplinary proceedings for auditors and other professionals, but it, too, found non-public proceedings unworkable and counterproductive.

The PCAOB has been pushing Congress to amend the Sarbanes-Oxley Act to make the disciplinary proceedings public, arguing that auditing firms are able to drag out the proceedings by keeping them confidential. A bipartisan pair of senators, Charles Grassley, R-Iowa, and Jack Reed, D-R.I., introduced legislation last November to address the problem (see Senate Bill Would Make PCAOB Disciplinary Hearings Public). Similar legislation has also been introduced in the House by Rep. Lynn Westmoreland, R-Ga.

The PCAOB noted that the inability to make the disciplinary proceedings public denies the public access to important information regarding PCAOB cases. It also incentivizes firms and individuals to litigate cases regardless of the legal merits, needlessly consuming valuable PCAOB resources. Interested parties are also deprived of the transparency needed to evaluate the effectiveness of the PCAOB’s enforcement program, the board argued, and it limits the board’s ability to use its enforcement authority as a tool to improve audit quality and deter violations of PCAOB rules.