Thursday, July 26, 2012

House Panel Hearings Reveal Support for Legislation Making PCAOB Proceedings Public

At House Capital Markets Subcommittee hearings on the tenth anniversary of th enactment of the Sarbanes-Oxley Act, Mercer Bullard, CEO of Fund Democracy, urged Congress to amend Sarbanes-Oxley to require that PCAOB proceedings be public except by order of the Board. Section 105 of  Sarbanes-Oxley permits PCAOB proceedings to be public only if the PCAOB finds good cause and    both sides consent which, in the view of Professor Bullard, as a practical matter, ensures that these proceedings will never be made public. He noted that secret proceedings improperly deny the public, including issuers’ audit committees, material information regarding auditors, and increase auditors’ incentives to litigate actions. PCAOB enforcement proceedings should be public, he emphasized, just as SEC proceedings have been for 25 years.
Senators Jack Reed (D-RI) and Charles Grassley (R-Iowa) have introduced legislation making PCAOB disciplinary proceedings public to bring auditing deficiencies at the audit firms or the companies they audit to light in a timely manner and help deter violations. The PCAOB Enforcement Transparency Act,  S 1907, would make hearings by the PCAOB, and all related notices, orders, and motions, open and available to the public unless otherwise ordered by the Board. The Board procedure would then be similar to the SEC's Rules of Practice for similar matters, where hearings and related notices, orders, and motions are open and available to the public. There is a companion bill in the House, HR 1503.