31 August 2004 LAWFUEL – Best for law, law news, legal news & legal research I am pleased that the PCAOB published today its first inspection reports, which reflect its inspection findings of the large accounting firms conducted a few months ago. The inspection process is a critical function of the PCAOB and, under the Sarbanes-Oxley Act, the PCAOB has been given unprecedented access into the firms.
The goal of these reviews is to improve audit quality, and thereby enhance financial reporting and the integrity of our markets. Although the Commission was not involved in the preparation of the reports, based on my initial reading, the PCAOB’s process appears to be thorough and the reports are candid and transparent. While I am disappointed with the findings of the reports, it is important to keep in mind that this is the first inspection which covers a period during which the firms were undergoing significant change following the July 2002 enactment of the Sarbanes-Oxley Act. The reports indicate that each of the four firms reviewed need to improve the quality of their audits. It is my hope that the firms will take these findings very seriously, and will make a concerted commitment to systematically improve audit quality over the long term. Ultimately, I believe that the PCAOB’s process will lead to a sea change for the profession, a profession which is evolving and changing in what is now a regulated environment.
Under the Act, the Commission has no role in the preparation of these reports. Instead, the Act provides that the Commission acts as an appellate body should there be any dispute between an accounting firm and the PCAOB over the content or findings in a particular report. If, however, the reports indicate that there are profession-wide actions that should be taken to improve the quality or reliability of audits, the Commission will work with the PCAOB to carefully consider the nature and scope of those actions.