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State Board Report

April 2017

U.S. Senators Jack Reed (D-RI) and Chuck Grassley (R-IA) reintroduced the PCAOB Enforcement Transparency Act on March 21. This bill would allow the Public Company Accounting Oversight Board to make public the disciplinary proceedings it has brought against auditors and audit firms earlier in their process. The Senators cite the case of an accounting firm that while it was subject to PCAOB disciplinary proceedings continued to issue no fewer than 29 additional reports on public companies without those companies knowing the relevant information about the proceedings.

Senator Reed stated: “Unlike other oversight bodies, such as the SEC, the U.S. Department of Labor, the Federal Deposit Insurance Corporation, the U.S. Commodity Futures Trading Commission, the Financial Industry Regulatory Authority, and others, the Board’s disciplinary proceedings are not allowed to be public without consent from the parties involved. Of course, parties subject to disciplinary proceedings have no incentive to consent to publicizing their alleged wrongdoing and thus these proceedings typically remain cloaked behind a veil of secrecy. In addition, the Board’s decisions in disciplinary proceedings are not allowed to be publicized until after the complete exhaustion of an appeals process, which can often take several years.”

Besides undermining the congressional intent of the Sarbanes-Oxley Act of 2002, “which was to shine a bright light on auditing firms and practices, and to bolster the accountability of auditors of public companies to the investing public,” Senator Reed said transparency proceedings “can serve as a deterrent to misconduct because of a perceived increase in the likelihood of getting caught.”

Bill S.610 would make hearings by the PCAOB, and all related notices, orders and motions, transparent and available to the public unless otherwise ordered by the Board. “This would more closely align the PCAOB’s procedures with those of the SEC for analogous matters,” Senator Reed pointed out.

Senators Reed and Grassley first introduced this bill in 2011.

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