Regulation

Watchdog Slams PCAOB Oversight of Big Four

“By failing to hold the Big Four accountable [for audit deficiencies], the board is putting all Americans’ financial futures in jeopardy.”
Matthew HellerSeptember 6, 2019

The Public Company Accounting Oversight Board has been too lenient with the Big Four accounting firms over audit deficiencies, resulting in only $6.5 million in fines during its 16-year history, according to a new report.

The Project on Government Oversight (POGO), an independent watchdog, said its analysis of PCAOB annual inspection reports showed the board has in key respects been doing “a feeble job” policing the Big Four.

“It has taken disciplinary action over only a tiny fraction of the apparent violations its staff has identified,” the report said. “Meanwhile, the financial penalties it has imposed pale into insignificance compared to the fines it apparently could have imposed.”

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In the 808 cases in which the Big Four performed audits that were so defective that the audit firms should not have vouched for a company’s financial statements, internal controls, or both, only 18 resulted in PCAOB enforcement actions, POGO found.

The audit cop, moreover, could have fined the audit firms more than $1.6 billion but has actually fined them a total of just $6.5 million, while penalties against individuals at Big Four firms totaled $410,000 — “less money than one partner at a big accounting firm can make in one year.”

According to Reuters, the report “could increase pressure on the [PCAOB], which in recent years has been criticized for being too close to the industry it oversees and slow to ensure the industry performed its job.”

A long-anticipated shake-up at the regulator in January 2018 led to the replacement of James Doty as chairman and the appointment of four new board members.

“It’s unacceptable that the agency is taking such a light-handed approach in holding these large audit firms accountable,” POGO’s executive director, Danielle Brian, said in a news release, adding, “By failing to hold the Big Four accountable, the board is putting all Americans’ financial futures in jeopardy.”

The report recommends reforms including requiring the PCAOB to clearly identify companies referenced in inspection reports and the individual auditors responsible for alleged audit deficiencies.