Improving Audit Quality by Strengthening the PCAOB

Why the Dodd-Frank Act Won't Prevent the Next Madoff-style Fraud

John S. DeJoy, PhD, CPA, and Don Furman, PhD, MBA, CFP

In the May 2009 CPA Journal, Helen M. Roybark noted that Bernard Madoff's auditors avoided the AICPA's peer review process (“Why Wasn't Madoff's Auditor Peer Reviewed or Inspected? New Bill Seeks to Close Loophole”). Madoff's auditing firm, Friehling & Horowitz, did not have to register with the Public Company Accounting Oversight Board (PCAOB) either, because auditors of nonpublic broker-dealers received an exemption. Roybark further noted that House Bill H.R. 1212, proposed by U.S. Representative Paul E. Kanjorski (D-PA), would have extended the PCAOB's oversight and authority to inspect audit firms to include auditors of nonpublic broker-dealers. Madoff was a nonpublic broker-dealer.