PCAOB Told SEC ‘Hold My Drink,’ Went All Enforcement-Crazy on Accountants in 2017

Posted on by Jason Bramwell

2017 was a banner year for the Public Company Accounting Oversight Board when it came to enforcement actions against accountants. For the Securities and Exchange Commission, not so much.

The PCAOB finalized 35 enforcement actions involving “accountants”—otherwise known as CPAs employed by SEC registrants, auditors, and audit firms—last year, up from 28 in 2016, according to a new report from Cornerstone Research. The 35 final actions were the most in PCAOB history, surpassing the 33 registered in 2015.

For the most part, the increase is due to the PCAOB cracking the whip more on auditors and audit firms of brokers and dealers, the report states. Audit firms still don’t have their shit together when it comes to broker-dealer audits, as the PCAOB found deficiencies in 68 of the 75 firms and in 96 of the 116 audits and related attestation engagements inspected last year.

Here’s another nugget from the Cornerstone Research report: “In 2017, the number of finalized PCAOB actions involving auditors and an audit firm was more than double the 2012-2016 average” of 19.

While the SEC actually had more final enforcement actions (40) against accountants in 2017 than the PCAOB, the number of regulatory actions dropped 20% from 2016’s 51, and the 40 final actions were the lowest since 2014 (36).

Why such a drop? The report says:

The SEC finalized only 13 actions related to the performance of audits of issuers and brokers and dealers compared to 26 in each of the previous two years—a primary reason for the overall decline in 2017.

Some other tidbits from the report:

  • In 2017, the number of final SEC actions involving only individuals was 24% more than the 2012-16 average.
  • At 49, the total number of respondents (individuals and firms) in SEC actions finalized in 2017 was slightly below the 2012-16 average of 51.

The SEC just hired a new chief accountant for its Division of Enforcement, so maybe 2018 will be a rebound year for sanctions-slapping on accountants.

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(UPDATE) The PCAOB’s Statement on the Signing of The Dodd-Frank Act Isn’t Exactly Enthusiastic

~ Includes statement from PCAOB spokesperson

Hey! Did you hear? Dodd-Frank got signed into law yesterday and plenty of people are excited (namely Dodd, Frank, BO) and there are plenty who are not.

The PCAOB, it seems, lands somewhere in the middle. Sure the dopes exempted public companies with market caps under $75 million from complying with 404 but putting things in perspective, the Board is probably just amped that the SCOTUS didn’t kick them off the playground.


To show their gratitude, the PCAOB doesn’t bother mentioning the exemption in their press release from yesterday, instead focusing on…foreign auditor oversight (pretty much a black hole) and authority over auditors of broker-dealers. We understand that playing nice is part of the game but COME ON.

We emailed the nice folks over at the Board to ask them about the 404 exemption but we’re still waiting to hear back from them. Perhaps they’re putting on their smiley faces to address this one since they’ve probably been gritting their teeth for the last 20 or so hours.

A PCAOB spokesperson provided us with the following statement:

The PCAOB believes that the internal control audit report required under SOX Section 404(b) has improved the reliability of financial reporting and audit quality. The Board has taken steps to make sure that the internal control auditing standard is scalable to companies of all sizes and has issued guidance and held educational forums to assist smaller company auditors in understanding how to apply that standard to smaller companies. The internal control audit requirement relates to the content of SEC filings, and SEC Chairman Schapiro opposed the exemption for non-accelerated filers.

So, in other words, the compliance technically falls under the SEC and the PCAOB issues the audit standards but it still has to hit a little close to home.

BPR:

PCAOB STATEMENT UPON SIGNING OF THE DODD-FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT
Washington, D.C. , July 21, 2010

Today’s enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act facilitates the PCAOB’s ability to share information with foreign auditor oversight authorities and closes gaps in the Board’s authority to oversee audits of brokers and dealers.

While the Sarbanes-Oxley Act of 2002 protects the PCAOB’s inspection and investigative processes from public disclosure, it permits the Board, in certain circumstances, to share information with federal and state authorities. However, at the time the Sarbanes-Oxley Act was enacted, very few other countries had audit oversight bodies and, therefore, there was no provision in the Sarbanes-Oxley Act authorizing the PCAOB to share information with foreign authorities. Since that time, many countries have established or are in the process of establishing audit oversight bodies. The Dodd-Frank Act allows the Board, under certain circumstances, to share information with such foreign auditor oversight authorities.

The Dodd-Frank Act also expands the PCAOB’s authority to oversee auditors of brokers and dealers. Under the Sarbanes-Oxley Act, auditors of brokers and dealers were required to register with the Board. The Dodd-Frank Act provides the PCAOB with standard-setting, inspection and disciplinary authority regarding broker-dealer audits.

More information about the PCAOB’s plans to implement this authority and guidance for auditors of brokers and dealers will be forthcoming.

2 thoughts on “PCAOB Told SEC ‘Hold My Drink,’ Went All Enforcement-Crazy on Accountants in 2017”

  2. New PCAOB board members beginning of 2018. The 2017 PCAOB Enforcement Director was replaced shortly thereafter.

    I would be extremely disappointed if GC didn’t run a similar article next year on the same topic.

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