But Who'll Audit the Auditors' Reports?

A new PCAOB rule would require accountancies to file with the board annually, and after such special events as disciplinary actions.

Kate Plourd
CFO.com | US

June 10, 2008

The Public Company Accounting Oversight Board adopted a framework that requires the 1,800 registered public accounting firms to file their own annual reports, as well as special reports on such events as disciplinary actions against the firm or key individuals.

The PCAOB sees the new reporting rules — growing out of the tightened restrictions on auditors in the Sabanes-Oxley Act of 2002, which also established the board — as a step giving investors and the public more transparent information about auditing firms.

"This is an important step to develop a system of reporting that will help serve the regulatory function and provide the PCAOB with info that will be useful for the board to practice oversight responsibility," board member Charles D. Niemeier said at Tuesday's board meeting.

Under the new rules, accountancies would be required to fulfill the new reporting obligations starting on June 30, 2009, to cover the March period, if the rules are approved by the Securities and Exchange Commission. In addition to basic information, the annual form would have to include a description of the audit reports it issued during the past 12 months, along with material about any disciplinary history relating toe persons who had joined the firm, and information about client fees. Fee information will be broken down by category of service, and expressed as a percentage of the firms' total fees billed.

In addition, the special-reporting requirement mandates firms to file with 30 days regarding the range of events listed by the PCAOB.

Asked if any of the new reports themselves needed to be audited, a spokeswoman for the PCAOB told CFO.com that auditing was not required.

In response to concern expressed by board members about the burden of the new filing requirements, especially on small audit firms, the board said it planned to publish an easy-to-understand guide directing audit firms compliance with the new rules following SEC approval.

Concerns about the burdens on small firms had been given consideration throughout the review process, the board noted. After public comment received about the proposed new rules, for example, the reporting deadline for special events was extended from two weeks to one month.

"I'm optimistic that once firms get familiar with the system they'll understand it in a straightforward and non-burdensome way," Michael Stevenson, PCAOB associate general counsel, said during the session.

The PCAOB plans to make the reports available to the public on the board's Web site, although a firm may petition for confidential treatment of its information. That determination would be made on a case-by-case basis.