Study Accuses PCAOB of Going Too Easy on Big Four Firms

By:
Chris Gaetano
Published Date:
Sep 9, 2019
audit

A study by the Project on Government Oversight (POGO) has accused the Public Company Accounting Oversight Board (PCAOB) of going too easy on the Big Four firms it was supposed to be overseeing, reporting that in the agency's entire 16-year existence, it has launched only 18 enforcement actions against Big Four firms, or auditors at those firms, and levied only $6.5 million in fines against them, according to Reuters. In those 16 years, the PCAOB has posted a total of 302 enforcement actions, including all the audit firms it oversees, according to POGO. The 18 actions against Big Four firms are in marked contrast to the large number of times—808—when PCAOB inspectors found violations so troubling that they determined that the audit firms should not have vouched for a company’s financial statements, internal controls, or both. Given that the agency has the statutory power to levy fines of $2 million for ordinary violations and as much as $15 million for more serious ones, it could have theoretically extracted $1.6 billion in fines versus the $6.5 million it actually did. The report also faulted the PCAOB for having fined individual auditors at Big Four firms a cumulative total of $410,000, when it had the statutory authority to do much more, pointing out that the actual amount is less than what a single Big Four audit partner makes per year. 

Former PCAOB Chair James Doty said in the report that the PCAOB tends to select cases that can be made convincingly, that can be sustained, and where the message will be a meaningful and useful one about prevention and deterrence; it is also willing to settle cases even if it means less than the maximum fine. Overall, he said, the enforcement culture looks mainly for the most egregious of violations. A current board spokesman added that the organization has only finite resources and so must be selective about what cases it chooses to pursue, and will also reward cooperation with leniency. This could also explain why the majority of enforcement actions are against smaller firms, or foreign affiliates of the U.S. Big Four, as they tend to have fewer resources to fight and are more likely to settle with the PCAOB. In contrast, the Big Four can put vast resources into their defense.

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