State Board Report

December 2011

Legislation that would open to the public the Public Company Accounting Oversight Board’s disciplinary hearings of accountants and accounting firms was introduced on November 18, 2011 by Senators Chuck Grassley (R-Iowa) and Jack Reed (D-RI) , S.1907 the “PCAOB Enforcement Transparency Act of 2011.” This would modify the Sarbanes-Oxley Act of 2002 that now requires the PCAOB’s disciplinary proceedings to be kept confidential through charging, hearings, initial decision and appeal. However, the Securities and Exchange Commission’s Rules of Practice make open to the public hearings and related notices, orders and motions.

“Sunshine is the best disinfectant,” Senator Grassley stated. “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 Reed-Grassley bill would amend Section 105(c)(2) and Section 105(d)(1)( C) of the Sarbanes-Oxley Act. These changes were requested in a letter from PCAOB Member Daniel Goelzer, then PCAOB Acting Chairman, in August 2010 to leaders of the Senate Banking Committee and the House Financial Services Committee. He had discussed these amendments to SOX when he addressed NASBA’s 2010 Annual Meeting. At that time, he cited one firm that while involved in the PCAOB’s enforcement process continued in public practice and filed 29 additional audit reports.

Senator Reed stated: “Investors and companies alike should be aware when auditors and accountants they rely on have been charged or sanctioned for violating professional auditing standards.” The senators said the PCAOB’s closed proceedings run counter to the public proceedings of not only the SEC, but also the US Department of Labor, the Federal Deposit Insurance Corporation, the US Commodity Futures Trading Commission, the Financial Industry Regulatory Authority, and others.

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