Audit regulators are watering down a proposed rule aimed at increasing auditors’ accountability for their work after the industry said that it would open them up to private lawsuits.
The Public Company Accounting Oversight Board may allow auditors to skirt a requirement to name the partner in charge of every public-company audit on annual reports by instead letting them provide the names to the regulator in a publicly available notice, Chairman James Doty said at a U.S. Chamber of Commerce event last Wednesday.
Since the PCAOB proposed the rule in December 2013, auditors have said that signing their names to annual reports will expose them to lawsuits if companies restate financial results or fraud is found. Doty’s new proposal could reduce that risk because the names wouldn’t be disclosed on a filing that triggers liability under federal law.
“It reduces their opposition,” said Doty, referring to the audit industry. “If you can speak to litigation risk in a way that still gets the information out there, that seems to be a reasonable way to go.”
Doty said he doesn’t agree with arguments that transparency will lead to successful lawsuits. Providing an alternative is a way to move the standard forward, he said. The PCAOB will solicit comments in the next 60 days about whether to allow auditors to name themselves in a report filed with the regulator, Doty told reporters today.
The Securities and Exchange Commission, which oversees the PCAOB, must approve any new standard it issues. SEC Chief Accountant James Schnurr said at today’s event that he’s examining whether the PCAOB’s process for passing rules is “inefficient in terms of them moving projects to completion.”
“If you look at the projects on their agenda, there are quite a few that have been there for many, many years,” Schnurr said.
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