The Public Company Accounting Oversight Board is planning to crack down on audit firm supervision and to ask Congress to lift the veil of confidentiality that Sarbanes-Oxley granted to audit enforcement proceedings.

The board published a warning to audit firms that it plans to start taking action against firms that fail to supervise their auditors properly, even considering new rules that would require audit firms to more clearly document how they assign supervisory responsibilities that already exist under other audit requirements. Sarbanes-Oxley gave the PCAOB authority to impose sanctions on firms or their executives when they fail to properly supervise someone who ultimately commits a violation of audit rules, but the PCAOB has never pursued an enforcement act based on that authority, said acting Chairman Dan Goelzer.

“Firms obviously cannot act, or fail to act, independent of their personnel,” said Goelzer in a public meeting to announce the new initiative. “The actions of the firm are those of its partners and staff. When something goes wrong in an audit, the problem can frequently be traced to some type of supervisory breakdown.”

The released published by the board is meant to serve as a warning to audit firms that the board plans to get more aggressive with firms that don’t properly supervise their personnel, said Goelzer. It is not meant to suggest, however, that the board is planning to beef up the existing requirements for firms to supervise their auditors, he said, except for the possible documentation requirement. “The board is prepared to address supervisory failures when they occur, on a case-by-case basis, through its enforcement program,” he said.

On a side note related to the enforcement program, the board and its enforcement director, Claudius Modesti, used the open meeting platform to vent their frustration over the privacy that surrounds the PCAOB enforcement process. The board directed the staff to develop a proposal to Congress to make the audit enforcement process a matter of public record.

The Sarbanes-Oxely Act provides that enforcement actions against audit firms or specific auditors should remain private until settled or fully litigated, even if that includes appeals to the full PCAOB or the Securities and Exchange Commission. Since the PCAOB began operations in 2003, it has settled and announced only a few dozen enforcement actions, and only one of those was against a Big 4 or other major firm.

The process represents a “sharp contrast” to SEC administrative proceedings, said Goelzer. “If the SEC were to bring the same case, alleging the same violations against the same auditor, the SEC’s charges would be disclosed at the time the commission instituted its proceedings,” he said. “I believe the Board should ask Congress to make that change so that the public will have the same access to our enforcement proceedings as to those of the SEC.”

Modesti said the enforcement division has a “significant inventory” of ongoing investigations and has pursued litigation involving a broad range of audits, yet he’s not allowed to disclose any of it. Firms and auditors who are party to proceedings take advantage of the privacy, said Modesti, in some cases raising defenses that “do not have substantial merit.”

The result is to prevent investors and others from knowing what wrongdoing has been alleged, he said. “Nonpublic disciplinary proceedings are a major stumbling block for the board’s enforcement program to most effectively protect investors and improve audit quality,” he said.