[Congressional Record Volume 163, Number 43 (Monday, March 13, 2017)]
[Senate]
[Page S1780]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. REED (for himself and Mr. Grassley):
  S. 610. 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, I am reintroducing the PCAOB Enforcement 
Transparency Act along with Senator Grassley. 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. In response to this crisis, the Senate Committee on Banking, 
Housing, and Urban Affairs conducted multiple 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. Among its many provisions, this law 
called for the creation of a strong, independent board, the PCAOB, 
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.
  To conduct its duties, the PCAOB, under the oversight of the U.S. 
Securities and Exchange Commission, SEC, oversees more than 1,500 
registered accounting firms, as well as the audit partners and staff 
who contribute to a firm's work on each audit. The board's ability to 
initiate 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.
  These PCAOB disciplinary proceedings create a lack of transparency 
that invites abuse and undermines the congressional intent behind 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 years, some bad actors have taken advantage of this loophole 
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 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.
  For 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 its 
PCAOB disciplinary proceedings. Disturbingly, investors and the public 
company clients of that audit firm were deprived of relevant 
information about the proceedings against the firm and the substance of 
any violations.
  In addition to the reasons I have already provided, there are other 
reasons why the board's enforcement proceedings should be open and 
transparent.
  First, 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.
  Second, 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, transparent 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 nonsecret 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 transparency and accountability of audit firms subject to 
PCAOB disciplinary proceedings is a critical component of bolstering 
and maintaining 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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