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State Board Report

May 2013

A bill that would make the Public Company Accounting Oversight Board’s (PCAOB) disciplinary proceedings more open to the public was reintroduced by U.S. Senators Jack Reed (D-RI) and Chuck Grassley (R-IA) on April 26 as the “PCAOB Enforcement Transparency Act of 2013.” The bill would make the PCAOB’s hearings, and all related notices, orders and motions, open and available to the public unless otherwise ordered by the Board. The 2002 Sarbanes-Oxley Act, which created the PCAOB, required its disciplinary proceedings to be kept confidential through charging, hearings, initial decision and appeal. Until the Securities and Exchange Commission decides to let the PCAOB’s sanctions be enacted, the entire PCAOB proceeding remains nonpublic unless all parties consent to making it public (see SBR 9/10).

“Currently, PCAOB proceedings are secret while SEC proceedings are not,” Senator Grassley said. “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.” The Senators maintain that the PCAOB’s closed proceedings run counter to those of not only the SEC, but also the DoL, FDIC, U.S. Commodity Futures Trading Commission and FINRA.

The change was originally introduced in 2010. In a January 23, 2012 letter to the Chairmen of the House Committee on Financial Services, NASBA Chair Mark P. Harris and President Ken L. Bishop wrote: “We strongly support and urge the passage of the proposed legislation giving the PCAOB the authority to make post-investigative disciplinary proceedings public from the point of the PCAOB’s order to charge a respondent and start enforcement procedures, consistent with the authority of the SEC. Like the PCAOB and the SEC, the primary responsibility of State Boards is to protect the public while maintaining due process in their careful investigation and discipline of certified public accountants and firms.”

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