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PCAOB Continues to Ramp Up Enforcement

S.J. Steinhardt
Published Date:
Mar 5, 2024

GettyImages-614840826 Audit

In 2022 and 2023, the Public Company Accounting Oversight Board (PCAOB) intensified its enforcement efforts significantly and levied record-setting penalties, Accounting Today reported. As of November 2023, the PCAOB had issued almost $12 million in penalties—breaking its record of $11 million in 2022—with more to come,

"Last year through our enforcement program we imposed the highest penalties in PCAOB history against those who put investors at risk," said Chair Erica Williams during a meeting in mid-November to approve the 2024 budget, Accounting Today reported at the time. "This week we surpassed that record with $11.9 million in penalties against wrongdoers—and the year is not over. Our 2023 penalties are already more than double the total penalties in each of the five years before our record-breaking year in 2022."

The PCAOB plans to review more audit engagements, to expand its inspection procedures and to get its inspection reports out faster in 2024.

Overall, the regulatory environment for accountants, auditors and tax professionals is getting stricter, Accounting Today also reported.

Cornerstone Research's "PCAOB Enforcement Activity—2022 Year in Review" report stated that, in 2022, the PCAOB publicly disclosed 29 disciplinary actions involving the performance of an audit or a firm's system of quality controls. That was up more than 60 percent compared with the 18 actions in 2021, and was also higher than the 2017-21 average (24 PCAOB actions).

"The record penalties were consistent with statements made by chair Erica Williams that the PCAOB would not be limited to the levels of penalties in past years," said Elaine Harwood, a report co-author, and senior vice president, and head of the accounting practice at Cornerstone Research, in a statement announcing the findings. "Penalties totaling $7.9 million were imposed on the 10 actions disclosed in December [2022] alone."

"Our mission at the PCAOB is to protect people who invest in public companies,” a PCAOB spokesperson said in a statement sent to Accounting Today on the board's stricter enforcement efforts. “One way we do that is through enforcement actions when our rules or standards are violated. We carefully monitor registered accounting firms and will not hesitate to take action when appropriate."

In furtherance of that mission, the PCAOB has issued a proposal to amend its Rule 3502, "Responsibility Not to Knowingly or Recklessly Contribute to Violations." If adopted, the proposal would lower Rule 3502's liability standard from recklessness to negligence and would provide the PCAOB with the resources it believes it needs to hold auditors more accountable.

The PCAOB asked for public comment on the proposal, which has prompted quick responses from firms such as PwC and Grant Thornton, among others.

In a written response, PwC stated that the "proposal could shift the liability landscape in ways that will undermine the objectives of the proposal and adversely affect the quality of public company audits."

“The perceived gap in the PCAOB's current regulatory framework appears minimal at best,” Grant Thornton wrote in a comment letter. “It does not appear to be the type of gap that warrants a stark expansion of the enforcement-related tools that the board currently possesses."

One professional expressed support for the PCAOB's underlying mission to protect investors and promote audit quality, but called for more finesse.

"It is important that there's a balanced approach to enforcement and that the PCAOB is focused on those actions that truly harm investors or are clear, significant violations of the board's rules and standards, said Dennis McGowan, vice president of professional practice and anti-fraud initiatives at the Center for Audit Quality (CAQ), in an interview with Accounting Today. "And certainly when those actions occur and there's harm to investors and it is clear what happened, certainly enforcement actions are important, but that should be balanced with: Are there underlying reasons for those violations that has maybe more to do with a lack of understanding and how to apply those requirements? If they think that it could be addressed through clarification and standards and rules to help prevent those violations from occurring, I think that is an important way to stop these things from happening before they even happen."So, again­—supportive of holding wrongdoers accountable, but balancing that with when is it true wrongdoing versus lack of clarity on what may be required of the auditor."

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