The Public Company Accounting Oversight Board is pursuing disciplinary actions against 19 audit firms and individual auditors and is thinking about deregistering hundreds of firms that don't provide audit services falling within the board's regulatory authority.

In a recent speech, PCAOB member Jeanette Franzel said the board has active cases pending but can't discuss them because of the privacy around its enforcement activities as established under Sarbanes-Oxley. The audit regulator so far has settled 48 disciplinary orders and resolved seven others by trial, she said. The privacy around the enforcement process, however, prohibits her or anyone else at the PCAOB from disclosing the nature of the disciplinary measures or even the targets of those measures.

“This situation results in a variety of unfortunate consequences for investor protection and the public interest,” she said. Board members, especially Chairman James Doty, have said the secrecy inspires firms to litigate charges to delay public disclosure of allegations, depriving investors of information on allegations that they should receive more timely. The board has appealed to Congress to make its proceedings public, but the proposed legislation in both the House of Representatives and the Senate has stalled out.

To illustrate what kinds of infractions will get an auditor in trouble with the PCAOB, Franzel said the PCAOB's Division of Enforcement and Investigations considers any potential violation of law, rules, or standards as a potential disciplinary case but will pay special attention to issues that involve serious audit failures, multiple audit failures, fraud, or other intentional misconduct, including non-cooperation.

As an example of noncooperation, Franzel said investigators will take a hard look at auditors who interfere with the board's inspection or enforcement process. She didn't say whether that extends to firms overseas that are resisting inspections because of sovereignty concerns or conflicts with their home country laws, a situation the board has faced in numerous countries abroad.

On a separate front, the PCAOB also is considering whether it should continue to carry on its registration rolls firms that applied for and received permission to audit public companies or broker-dealers, but perform no such work and seem to have no interest in doing so. When the PCAOB came into existence under Sarbanes-Oxley, many firms registered to position themselves for marketing purposes as capable of performing public company work but don't actually operate in that market.

At the moment, the number of firms meeting that description is 870, Franzel said, 525 overseas and 345 in the United States. “Registration alone does not subject an accounting firm's activities to Board oversight and in no way serves as an endorsement of the quality of services a firm is delivering to its clients,” she said. “Some of these firms registered in the hope of acquiring public company or broker-dealer audit clients.”

Franzel said it's time for the board to consider whether continued registration for such firms is appropriate. “I expect that the Board may soon explore mechanisms to address firms that may fall into this category,” she said.

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