US Democratic Senators Elizabeth Warren and Sheldon Whitehouse have called for tougher enforcement actions against accounting firms amid a sustained increase in flawed audits.
In a letter to the Public Company Accounting Oversight Board (PCAOB), the Senators noted that audit deficiency rates have exceeded 40% for the past two years. As an example, they pointed to BDO, the sixth-largest accounting firm, where nearly all inspected audits last year had flaws. Warren and Whitehouse questioned whether "repeat offenders" are deterred by fines, which they described as "a drop in the bucket" compared to firm revenues.
"The PCAOB must do better," Warren and Whitehouse wrote, arguing that either audit standards are inadequate or the PCAOB is not enforcing them effectively. PCAOB chair Erica Williams reported deficiencies in 46% of audits inspected last year, up from 40% in 2022. She acknowledged "small signs of improvement," but the senators disagreed, asserting that inspections reveal that "investors and the public essentially face a coin flip" regarding trust in audit results.
Meanwhile, a conservative legal group has filed a lawsuit challenging the PCAOB's regulatory powers as unconstitutional. Additionally, PCAOB Board Member Christina Ho has criticized the regulator's heightened enforcement activity as "overzealous," suggesting that financial restatements rather than inspection findings should gauge audit quality.
Last year, Starling published "Renal Failure: A Crisis in Audit Culture?," a Deeper Dive report into global concerns surrounding audit quality and professional conduct. Therein, we discuss the efforts of regulators, including the PCAOB, to reform audit quality and governance.
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