A diverse group of individuals who formerly served on the Investor Advisory Group to the Public Company Accounting Oversight Board wrote to newly sworn in Securities and Exchange Commission Chairman Gary Gensler regarding the need for sweeping reforms at the audit oversight agency, which has largely abandoned its public interest mission in recent years.
The PCAOB was created in the wake of the Enron and Worldcom accounting scandals to oversee the audits of public companies “in order to protect the interests of investors and further the public interest in the preparation of informative, accurate, and independent audit reports for companies the securities of which are sold to, and held by and for, public investors.” The letter outlines a number of actions the PCAOB has taken in recent years that conflict with and undermine that mission, including replacing experienced staff with less qualified individuals, reducing its budget including for the critically important inspection function, dissolving its advisory boards, making policy changes without soliciting public comment, and deferring to industry-dominated groups in the standard-setting process, and operating in a non-transparent manner.
“Given the significant personnel changes, budget reductions and anti-regulatory activity at the PCAOB, there is considerable heavy lifting ahead to return the PCAOB’s focus to its primary mission of investor protection. Given their track record, we do not believe the current PCAOB Board members are up
to the task of re-focusing the PCAOB on its core mission because they are responsible for the dramatic shift away from what investors expect,” the former advisory group members wrote. “The circumstances surrounding the PCAOB compel the SEC to take immediate and assertive action to reverse the damage done over the past four years.”
They called on the new SEC Chair to act quickly to fill the current vacancy on the Board “with someone who is independent of auditing firms, highly competent and historically supportive of investors’ concerns relating to audit firm oversight and independence,” make that person chair, and reinstate the PCAOB’s advisory groups. “Together, these initial actions should begin to restore investors’ confidence in the public company audit process in the United States, however, more reforms will ultimately be needed,” they wrote.