By James Hamilton, J.D., LL.M.
The SEC has charged auditors for issuing audit reports on public companies’ financial statements without being registered with the PCAOB. The Sarbanes-Oxley Act requires that accounting firms which prepare and issue reports on the financial statements of public companies must be registered with the PCAOB. The SEC’s administrative orders name 37 unregistered audit firms and 32 audit partners who participated in the preparation and issuance of the audit reports. Enforcement Director Linda Chatman Thomsen said the failure to register with the PCAOB represents a violation of one of the key requirements of the Sarbanes-Oxley Act by avoiding PCAOB oversight.
There is no explicit rule that requires issuers to inquire or to determine that their accounting firm is registered with the PCAOB. Issuers are obligated to have their financial statements certified by a registered accounting firm. The failure to have their financial statements audited by registered firms could lead to a series of consequences affecting issuers’ listing status and their ability to access the public markets. According to SEC officials, the Division of Enforcement does not anticipate any actions against the issuers whose financial statements were audited by unregistered firms.