[Congressional Record Volume 161, Number 60 (Thursday, April 23, 2015)]
[Senate]
[Page S2405]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. REED (for himself and Mr. Grassley):
  S. 1084. A bill to promote transparency by permitting the Public 
Company Accounting Oversight Board to allow its disciplinary 
proceedings to be open to the public, and for other purposes; to the 
Committee on Banking, Housing, and Urban Affairs.
  Mr. REED. Mr. President, today I am joined by Senator Grassley in 
reintroducing the PCAOB Enforcement Transparency Act. This bill permits 
the Public Company Accounting Oversight Board, PCAOB, to make public 
the disciplinary proceedings it has brought against auditors and audit 
firms earlier in the process.
  Over 10 years ago, our markets were victimized by a series of massive 
financial reporting frauds, including those involving Enron and 
WorldCom. These and other public companies had produced fraudulent and 
materially misleading financial statements, which artificially drove 
their stock prices up. Once the fraud was discovered, investor 
confidence plummeted.
  In response to this crisis, the Senate Committee on Banking, Housing, 
and Urban Affairs conducted a series of hearings, which produced 
consensus on a number of underlying causes, including weak corporate 
governance, a lack of accountability, and inadequate oversight of 
accountants charged with auditing public companies' financial 
statements.
  In order to address the gaps and structural weaknesses revealed by 
the investigation and hearings, the Senate passed the Sarbanes-Oxley 
Act of 2002 in a 99 to 0 vote.
  The Sarbanes-Oxley Act ensured that corporate officers were directly 
accountable for their financial reporting and for the quality of their 
financial statements. This law also created a strong, independent 
board, the PCAOB, to oversee the conduct of the auditors of public 
companies.
  The PCAOB is responsible for overseeing auditors of public companies 
in order to protect investors who rely on independent audit reports on 
the financial statements of public companies and operates under the 
oversight of the U.S. Securities and Exchange Commissioner, SEC.
  To conduct its duties, the PCAOB oversees more than 2,400 registered 
auditing firms, as well as the thousands of audit partners and staff 
who contribute to a firm's work on each audit. The Board's ability to 
commence proceedings to determine whether there have been violations of 
its auditing standards or rules of professional practice is an 
important component of its oversight.
  However, unlike other oversight bodies, such as the SEC, the U.S. 
Department of Labor, the Federal Deposit Insurance Corporation, the 
U.S. Commodity Futures Trading Commission, the Financial Industry 
Regulatory Authority, and others, the Board's disciplinary proceedings 
are not allowed to be public without consent from the parties involved. 
Of course, parties subject to disciplinary proceedings have no 
incentive to consent to publicizing their alleged wrongdoing and thus 
these proceedings typically remain cloaked behind a veil of secrecy. In 
addition, the Board's decisions in disciplinary proceedings are not 
allowed to be publicized until after the complete exhaustion of an 
appeals process, which can often take several years.
  The nonpublic nature of these PCAOB disciplinary proceedings creates 
a lack of transparency that invites abuse and undermines the 
Congressional intent behind the establishment of the PCAOB, which was 
to shine a bright light on auditing firms and practices, and to bolster 
the accountability of auditors of public companies to the investing 
public.
  Over the last several years, some bad actors have taken advantage of 
the lack of transparency by using it to shield themselves from public 
scrutiny and accountability. PCAOB Chairman James Doty has repeatedly 
stated in testimony provided to both the Senate and House of 
Representatives over the past two years that the secrecy of the 
proceedings ``has a variety of unfortunate consequences'' and that such 
secrecy is harmful to investors, the auditing profession, and the 
public at large.
  In one example, an accounting firm that was subject to a disciplinary 
proceeding continued to issue no fewer than 29 additional audit reports 
on public companies without any of those companies knowing about the 
PCAOB disciplinary proceedings. In other words, investors and the 
public company clients of that audit firm were deprived of relevant and 
material information about the proceedings against the firm and the 
substance of any violations.
  There are several reasons why the Board's enforcement proceedings 
should be open and transparent. First, as I have already noted, the 
closed proceedings run counter to the public proceedings of other 
government oversight bodies. Indeed, nearly all administrative 
proceedings brought by the SEC against those it regulates, including 
public companies, brokers, dealers, investment advisers, and others, 
are open, public proceedings. The PCAOB's secret proceedings are not 
only shielded from the public, but also from Congress, making it 
difficult, if not impossible, to effectively evaluate the Board's 
oversight of auditors and audit firms, and its enforcement program.
  Second, the incentive to litigate cases in order to continue to 
shield conduct from public scrutiny as long as possible frustrates the 
process and requires the expenditure of needless resources by both 
litigants and the PCAOB.
  Third, agencies such as the SEC have found open and transparent 
disciplinary proceedings to be valuable because they inform peer audit 
firms of the type of activity that may give rise to enforcement action 
by the regulator. In effect, transparency of proceedings can serve as a 
deterrent to misconduct because of a perceived increase in the 
likelihood of ``getting caught.'' Accordingly, the audit industry as a 
whole would also benefit from timely, public, and non-secret 
enforcement proceedings.
  Our bill will make hearings by the PCAOB, and all related notices, 
orders, and motions, transparent and available to the public unless 
otherwise ordered by the Board. This would more closely align the 
PCAOB's procedures with those of the SEC for analogous matters.
  Increasing the transparency and accountability of audit firms subject 
to disciplinary proceedings instituted by the PCAOB is a critical 
component of efforts to bolster and maintain investor confidence in our 
financial markets, while better protecting companies from problematic 
auditors.
  I hope our colleagues will join Senator Grassley and me in supporting 
this legislation to enhance transparency in the PCAOB's enforcement 
process.

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