Review of the PCAOB's Enforcement and Investigations Program
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By AccountingWEB Staff
In his January letter to Mary Schapiro, chairman, U.S. Securities and Exchange Commission (SEC), James Doty, chairman, Public Company Accounting Oversight Board (PCAOB), stated, "I am pleased to transmit to you a summary of the PCAOB's most recent performance review, Review of the Public Company Accounting Oversight Board's Enforcement and Investigations Program." Doty explained that the board's office of Internal Oversight and Performance Assurance (IOPA) conducted the review to provide the board, the SEC, and others assurance that the PCAOB “is achieving the objectives of Title I of the Sarbanes-Oxley Act (SOX) in an effective manner."
The review determined that the PCAOB's Division of Enforcement and Investigations (DEI) did have a program in place to "enforce audit-related laws and rules consistent with the board's strategic goals." However, IOPA found that the DEI faces challenges in carrying out its enforcement responsibilities, including constraints imposed on the board by the Act itself. In that regard, the director expressed his view “that the most significant issue facing the board’s enforcement program and its ability to effectively protect investors was the statute-mandated nonpublic nature of disciplinary proceedings.” In the director’s opinion, nonpublic proceedings:
- Deny the public access to important information regarding PCAOB cases;
- Incentivize firms and individuals to litigate cases regardless of merit, needlessly consuming valuable board resources;
- Deprive interested parties of the transparency needed to evaluate the effectiveness of the board’s enforcement program; and
- Limit the board’s ability to use its enforcement authority as a tool to improve audit quality and deter violations of Board rules.
SOX also provides that “if final board sanctions are appealed to the SEC, the imposition and public reporting of those sanctions [are] stayed unless and until the SEC lifts the stay. The potential for this further delay adds even more incentive, in the director’s view, for firms to litigate as long as possible regardless of whether they believe they will ultimately prevail.”
The review also led to the conclusion that a number of opportunities existed “to improve internal processes and, potentially, case timeliness.“ Those opportunities include:
- Tracking, evaluating, and reporting case status and timelines more effectively;
- Determining whether document reviews and other case-related workflows could be streamlined;
- Determining whether additional responsibilities could be delegated to the associate director level;
- Developing additional strategies for intra-DEI communication as cases progress and for leveraging lessons learned once cases are completed; and
- Conducting additional training for DEI staff.
In addition IOPA made several recommendations with the intent to further facilitate “DEI’s efforts to maximize its effectiveness and timeliness, and to further leverage the skills and experience of its staff members.” The director agreed with each recommendation.