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‘PCAOB-Registered Firm’ Doesn’t Mean Shit, Says PCAOB

Posted on by Going Concern News Desk
seal of approval, an actual seal

Pictured: Seal of approval

The Public Company Accounting Oversight Board has issued yet another proposal and at least this time it is a refreshing break from the usual extra work they love piling on already overworked auditors.

Rule 2400, False or Misleading Statements Concerning PCAOB Registration and Oversight would, according to the PCAOB, “enhance public understanding and investor protection by establishing new restrictions on statements auditors can make concerning a firm’s PCAOB registration status, including the extent of PCAOB oversight of the firm’s work.”

So basically:

While it is a linchpin of PCAOB oversight, registration in and of itself does not indicate that a firm provides high-quality service. Furthermore, the PCAOB does not endorse registered firms or their services. Nevertheless, the PCAOB has observed instances where registered firms have misrepresented PCAOB registration as a “seal of approval” or a “mark of excellence.”

No way, someone’s actually doing that? We don’t believe you.

*Googles “PCAOB mark of excellence”*

Wow, that’s pretty dumb. So they probably wanted to go after this firm but couldn’t find any rules to get them with. Got it.

Although there is a risk that false or misleading statements concerning a firm’s PCAOB registration and oversight might mislead clients, potential clients, and the public, no specific PCAOB rule now expressly prohibits auditors from making such statements.

Another firm we won’t name because the example isn’t egregious uses this language on its site that is definitely a bit ambiguous, or would be to anyone who doesn’t know what exactly the PCAOB does or doesn’t do (which is probably a lot of people):

[Firm] has been registered with the Public Company Accounting Oversight Board (PCAOB) since its establishment under the provisions of the Sarbanes-Oxley Act in October 2003. Our PCAOB registration requires us to undergo a rigorous, comprehensive, at least tri-annual review of our compliance with audit performance standards approved by the Securities Exchange Commission (SEC). These PCAOB inspections focus on our quality control standards, technical knowledge of audit, accounting and financial reporting rules, as well as our hiring and training practices. PCAOB inspections are carried out by experienced auditors who typically have significant experience at Big Four/National accounting firms. We are proud of our nearly 20 year history of being registered with, and inspected by, the PCAOB. The PCAOB is a private-sector, non-profit corporation created by the Sarbanes-Oxley Act, to oversee the auditors of public companies in order to protect the interests of investors and further the public interest in the preparation of informative, fair and independent audit reports.

“PCAOB registration is not an advertising gimmick for firms,” said PCAOB Chair Erica Y. Williams. “In order to protect investors from misinformation, there must be consequences when firms misrepresent their registration status or what it means.”

Proposed Rule 2400 aims to achieve the following:

  • Establishing a general prohibition on false or misleading statements concerning registration. The proposal would generally prohibit a registered firm and its associated persons from making false or misleading statements concerning the firm’s PCAOB registration status, including the extent of the PCAOB’s oversight over the firm’s services.
  • Providing specificity about the application of the general prohibition. The proposal sets forth a non-exhaustive list of scenarios that would violate the general prohibition. These include certain statements regarding PCAOB registration and oversight that (i) state or imply the PCAOB sponsors, recommends, or otherwise endorses the firm or its services; (ii) are made by a firm that is not currently subject to PCAOB oversight; (iii) refer to particular services that are not subject to PCAOB oversight; (iv) appear in auditor’s reports for clients other than issuers or broker-dealers; or (v) are made about a firm with a pending request to withdraw from PCAOB registration.
  • Codifying the Board’s practice of considering false or misleading statements during the registration process. The final provision would codify the Board’s current practice of considering any prior false or misleading statements made by an applicant firm or its personnel regarding the firm’s PCAOB registration status, including the extent of PCAOB oversight of the firm, when reviewing an application for registration with the PCAOB from the firm.

Secondary to the bragging issue, the proposal also includes a new procedural mechanism, proposed new paragraph (h), Constructive Withdrawal Requests, of existing PCAOB Rule 2107, Withdrawal from Registration, that would permit the Board, under specified conditions, to (i) treat a PCAOB-registered firm’s failures both to file annual reports to the PCAOB and to pay annual fees to the PCAOB for at least two consecutive reporting years as a constructive request for leave to withdraw from PCAOB registration and (ii) to deem the firm’s registration withdrawn.

The deadline for public comment on the proposal is April 12, 2024. This might get some fun comments, guess we’ll see.

Proposed PCAOB Rule Would Prohibit Auditors From Making False or Misleading Statements About PCAOB Registration and Oversight [PCAOB]

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Supreme Court Ruling Could Expose PCAOB to More Political Pressure

This story is republished from CFOZone, where you’ll find news, analysis and professional networking tools for finance executives.

We’re not quite as sure as others are that yesterday’s Supreme Court decision regarding SarbOx is so utterly meaningless regarding the future of the Public Company Accounting Oversight Board.

Sure, the court said the law is still fully in effect, blah, blah, blah.

But letting the Securities and Exchange Commission fire PCAOB board members for any reason instead of “for cause” could easily subject the board to significantly more political influence.


While Floyd Norris says the commission is unlikely to fire anyone on the PCAOB, the fact is the has commission has thrown its weight around in similar fashion in the case of the Financial Accounting Standards Board when companies have complained to Washington about FASB’s accounting rule making.

What’s to stop them from complaining to the SEC that the PCAOB is being too hard on its auditors, and the SEC from succumbing to that pressure?

Much depends, of course, on who’s leading the commission. Mary Schapiro might not easily bend to the political winds, but her predecessor, Christopher Cox, clearly did just that in connection with FASB.

After all, when during a conference on accounting I asked Conrad Hewitt, the SEC’s last chief accountant under Cox, about the SEC’s threat to hold up approval of FASB’s budget unless it let the commission vet nominations to the board in advance, Hewitt said the SEC was acting properly in its heightened role as the FASB’s overseer under SarbOx.

Yet a FASB member privately insisted to me afterward that the SEC had no authority to do what it did.

And at another conference a few months later, I asked Hewitt what the White House was telling the SEC to do about exemptions for small companies from SarbOx’s requirements for internal controls, the infamous provision known as Section 404. At that, Hewitt, as somnolent a figure as ever occupied the job, sat up in his chair as if he’d just had a bucket of cold water thrown in his face, and insisted that the SEC was an independent agency.

But given what happened to Cox’s predecessor, William Donaldson, I think Hewitt’s reaction to this question was disingenuous.

And both of his answers help explain why the big argument on the court yesterday over the theory of “the unitary executive” and the ability of the president to fire “independent” agency personnel isn’t quite as irrelevant to the PCAOB’s future as most everyone else seems to think.

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