Oct. 24, 2017
Public Citizen Lauds SEC for Expanded Auditor Report
Statement of Bartlett Naylor, Financial Policy Advocate, Public Citizen’s Congress Watch Division
Note: Late Monday, the U.S. Securities and Exchange Commission (SEC) unanimously approved a proposed rule from the Public Company Accounting Oversight Board (PCAOB) requiring auditors to be more detailed in their public reports to shareholders.
Shareholders pay millions to auditors to review the public companies where they invest. They deserve more than a terse declaration that the firm’s accounts are in order. This new rule will provide more detailed discussion about problem areas. Ideally, it also will improve the audits themselves, as it will reveal a track record where auditors didn’t even highlight problems that later spill into public view. What once was a neglected part of a shareholder report may well become the best read.
Auditors failed to see the financial crash of 2008, passing audits of major banks such as Washington Mutual, which declared bankruptcy just months after its audit. This rule ends an overly long process that began formally in 2010 and involved three public comment periods and extensive outreach (PDF). That protracted debate and the fact that this commonsense reform may be the most important of its kind in seven decades speaks to the strangling political grip that the concentrated audit industry holds over Washington policymaking.
Public Citizen commends SEC Chair Jay Clayton for ratifying this reform. We look forward to continued support for other needed accounting improvements recommended by the PCAOB.