By Sarah N. Lynch
WASHINGTON Jan 14 A U.S. House panel is probing
whether the country's primary audit watchdog is doing enough to
weigh the economic impact as it considers new regulations for
the nation's auditors.
In a Jan. 10 letter, House Oversight Chairman Darrell Issa
and committee member Patrick McHenry told the chairman of the
Public Company Accounting Oversight Board, or PCAOB, that they
fear the board is "taking insufficient action to comply with the
broad consensus that economic analysis is a critical element of
credible regulatory policy."
The Republican lawmakers added that internal PCAOB documents
they had obtained appeared to show an "institutional resistance
to rigorous economic analysis." They demanded that the PCAOB
hand over other records by Jan. 24 involving internal
communications on economic analysis.
Conservatives in Congress and business groups such as the
U.S. Chamber of Commerce have questioned whether regulators are
making good-faith efforts to weigh fully the costs and benefits
of new rules.
The PCAOB, which was created by the Sarbanes-Oxley Act of
2002, has come under the microscope over the past year because
it is contemplating whether to propose controversial new rules
to impose term limits on audit firms.
It has been hosting public roundtables to weigh auditor
rotation requirements, which are strongly opposed by many
Republicans in Congress as well as the Big Four audit firms -
PricewaterhouseCoopers, KPMG, Deloitte LLP
and Ernst & Young LLP.
Those in favor of such a measure say it would help bolster
The U.S. Chamber has won several key legal challenges to
Securities and Exchange Commission rules on the basis of shoddy
cost-benefit analysis in recent years, including a major 2011
case overturning a rule that aimed to help shareholders nominate
directors to corporate boards.
Unlike the SEC, which has a legal requirement to weigh a
rule's impact on capital formation, competition and efficiency,
the PCAOB is under no such obligation.
Any rules the PCAOB ultimately adopts must be approved first
by the SEC. In theory, if the SEC felt that the PCAOB needed to
do more economic analysis, it could reject them.
PCAOB Chairman Jim Doty pledged to lawmakers during a March
2012 hearing and in subsequent letters that he was committed to
more rigorous cost-benefit analysis.
In addition, the PCAOB's strategic plan for 2012-2016
commits to helping the SEC incorporate economic analysis in a
variety of other rules.
In their letter to Doty, Issa and McHenry say they are
concerned that a draft of the PCAOB's strategic plan mentioned
an economic analysis only once, in a discussion of a possible
rule on auditor rotation.
They said comments submitted by the PCAOB assistant chief
auditor in response to the draft raised questions about whether
an economic analysis would need to apply to all of the board's
They added that they were troubled by a lecture at a
PCAOB-organized training conference about rulings by the D.C.
appeals court on cost-benefit analysis, titled "The Emperor Has
No Clothes: Confronting the D.C. Circuit's Usurpation of SEC
In that training, they said the lecturer urged PCAOB
rule-writing staff to use "buzzwords" that might help mitigate
"The committee is concerned that despite the promises of
your testimony and your written response to the committee,
rigorous economic analysis is not being adequately incorporated
into the PCAOB's rulemaking process," they wrote.
A PCAOB spokeswoman said on Monday that the board
appreciates the "continued interest of Chairman Issa and Rep.
McHenry in our ongoing efforts to further integrate economic
analysis with PCAOB rulemaking."
"We look forward to addressing their questions," the