Audit regulator offers carrot to cooperators
(Reuters) - Auditors and audit firms that offer "extraordinary" cooperation to their primary U.S. regulator will be in line for special accommodations under a policy announced on Wednesday.
The enforcement division of the Public Company Accounting Oversight Board, which regulates U.S. auditors, has been criticized at times as slow moving. Under the provisions of the Sarbanes-Oxley Act, the regulator must keep all enforcement matters private until they reach a final review.
The new policy, which echoes a similar 2010 decree from the Securities and Exchange Commission, could help the PCAOB identify more cases and move more quickly, said Claudius Modesti, PCAOB director of enforcement and investigations.
"For a firm to self-report something allows us to get on to it sooner and mitigate the amount of damage that could be caused, such as bad audit reports," Modesti told Reuters.
Under the policy, the PCAOB will give credit to anyone who comes forward early and voluntarily reports violations or quickly moves to correct and prevent problems.
For example, a firm that reports misconduct by a partner before the PCAOB ferrets it out, or someone who reports on attempts to hide information from PCAOB audit inspectors, could find that the watchdog board takes a lighter hand, Modesti said.
In exchange for coming forward to the PCAOB, auditors might hope for reduced charges or sanctions, and possibly a decision by the regulator not to take disciplinary action at all.
Since the PCAOB was created by the Sarbanes-Oxley Act of 2002, the board has revoked the registration of 27 audit firms and barred or suspended 50 individual auditors from auditing public companies. The regulator has filed less serious sanctions against a number of other firms as well, including two of the so-called Big Four, Ernst & Young and Deloitte.
In addition, the PCAOB is currently litigating cases involving 19 parties, though the details are confidential, Modesti said.
Such cases take years to build without inside cooperation, he said.
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