Some of the world's largest accounting firms are actively opposing new US rules that would hold them more accountable for uncovering fraud at their client companies.
The proposal, put forth by the Public Company Accounting Oversight Board (PCAOB), has prompted the Big Four accounting firms, including Deloitte, PwC, EY, and KPMG, to rally their clients against the changes. They argue that implementing the new rules would lead to increased audit fees.
The PCAOB's proposal aims to expand auditors' responsibilities to examine whether a company complies with laws and regulations and to communicate more of their concerns to the board of directors. The move comes as regulators in Washington express frustration that audit firms are not adequately protecting investors from wrongdoing by their clients.
In a joint letter, the four major accounting firms opposed the plan, expressing concern that the proposed amendments would push auditors to step beyond their core competencies. They argued that the changes would substantially increase the cost of audits without providing commensurate benefits.
Currently, auditors are only required to identify and report direct wrongdoing that impacts financial statement accuracy. Under the new rules, they would be expected to scrutinize behavior that could indirectly affect a company, potentially exposing it to significant fines or other risks.
Even within the PCAOB, the proposal has sparked controversy, with only three out of the five board members supporting the changes. Two members, who previously worked for the Big Four firms, have opposed the new rules, with one describing them as a "breath-taking expansion of the auditors' responsibilities."
Lynn Turner, a former chief accountant of the Securities and Exchange Commission and now an adviser to the PCAOB, voiced concerns about existing standards, stating that they provided auditors with too much leeway to avoid confronting management when they come across potentially illegal behavior.
Turner emphasized the need for more stringent regulations, stating, "The current standard doesn't serve the capital markets in any way, shape, fashion, or form. I've told the people at the PCAOB that this is a war, and the war has begun."
The deadline for businesses and accounting firms to submit comment letters opposing the new rules is set for August 7. As the debate continues, the outcome of these proposed changes could have significant implications for the accounting industry and its responsibilities in detecting and preventing fraud.
By fLEXI tEAM