July 28, 2022
Public Company Accounting Oversight Board chair Erica Williams said Thursday the PCAOB is working on updated auditing standards and stricter enforcement and audit firm inspections, a day after Securities and Exchange Commission chair Gary Gensler urged the PCAOB to act faster on new standards.
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Sarbanes-Oxley legacy
Williams also discussed the impact of Sarbanes-Oxley on the audit profession after scandals in the early 2000s involving companies like Enron, leading to the establishment of the PCAOB. “Led by Senator Paul Sarbanes, a Democrat from Maryland, and Representative Michael Oxley, a Republican from Ohio, both parties came together to craft legislation that passed nearly unanimously with strong, bipartisan support,” she said. “And 20 years ago this week, President George W. Bush signed into law the Sarbanes-Oxley Act of 2002. Among other things, the law we refer to today as SOX established the Public Company Accounting Oversight Board, or the PCAOB. For the first time, investors would have an independent audit watchdog putting their interests first.”
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Even some plaintiff attorneys who have sued auditing firms agree that Sarbanes-Oxley has helped, but they still see room for improvement in audit regulation.
“I largely think Sarbanes-Oxley has been a really effective piece of legislation and regulatory reform, which is an odd thing to say these days, but it came at a time when government was working a little bit more effectively,” said Laura Posner, a partner at the law firm Cohen Millstein in New York, who recently won a $35 million settlement in a class action she led against KPMG, where the plaintiffs alleged that KPMG perpetuated a massive fraud by signing off on Miller Energy’s $480 million valuation of its Alaskan oil reserve assets. “But I think it was a necessary reform at a time when the markets were really roiled by what happened with Enron, WorldCom, Adelphi and Global Crossing. We had a lot of major scandals that really rocked investor confidence in the markets, and I think Sarbanes-Oxley went a long way toward bringing back investor confidence in the markets.”
She cited the establishment of the PCAOB as an important factor. “It was conceptually really important that there was an actual cop on the beat, theoretically, and that there would be some independent oversight for the accounting industry,” Posner told Accounting Today in an interview. “That was important, although the PCAOB has not been without its own scandals, particularly most recently. Although it’s correlation, not causation, we’ve seen a significant reduction in the number of restatements that come out of public companies, but also the size of those restatements. We’re not seeing these mega earth-shattering restatements like we did during that era, and I think that has been largely very beneficial, both for corporations but more importantly for the investors in those corporations.”
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