Auditors “Monkeying Around with Documents,” Top PCAOB Cop Says
Claudius Modesti, the director of the Public Company Accounting Oversight Board’s Division of Enforcement and Investigations, revealed yesterday that the PCAOB is running into resistance -- and even evidence of tampering -- by the accounting firms it regulates. “We’re facing a non-cooperation situation across audit firms of various sizes,” he said during a Practicing Law Institute event.Ed. note: Everyone who believes that's going to happen, stand on your head.
When the PCAOB’s inspectors tell a firm they are coming to look over its work, “people will start monkeying around with documents,” Modesti says. Most of these incidents are hidden from public view, however, since details about the PCAOB’s routine inspections are scarce. And until a settlement is reached, the regulator can’t disclose anything about ongoing investigations that could lead to enforcement actions.
Nothing about PCAOB proceedings – not even the fact that an accounting firm is under investigation – can be publicly revealed until after a settlement. As a result, respondents to its accusations tend to push back for delays.
The delays and cloaked status of these cases haven't sat well with PCAOB board members and staff. They've requested legislation to address what they see as the problem that the public is not receiving information it needs to know. They have urged Congress to tweak the Sarbanes-Oxley Act so that more information about ongoing investigations can be disclosed.
Sometimes, the PCAOB may be scrutinizing the actions of an accounting firm related to a significant Securities and Exchange Commission against a company. But even in such cases, the public may not be aware of that fact that the PCAOB is investigating the company's accounting firm, Modesti noted. As a result, a PCAOB investigation does not have a deterrent effect on auditor misdeeds. Pending bills in the House of Representatives and the Senate would make the PCAOB’s disciplinary proceedings public.