[Congressional Record Volume 165, Number 70 (Tuesday, April 30, 2019)]
[Senate]
[Pages S2522-S2523]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. REED (for himself and Mr. Grassley):
  S. 1256. 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, the PCAOB Enforcement Transparency Act, 
which I reintroduce today with Senator Grassley, will permit 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.
  More than fifteen 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 a 99 to 0 vote, the Senate passed the Sarbanes-Oxley Act of 2002 
to address the structural weaknesses and faults revealed by the 
hearings. Among its many provisions, this law called for the creation 
of a strong and 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 1,800 
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 
begin proceedings that can determine whether there have been violations 
of its auditing standards or rules of professional practice is an 
important component of its oversight.
  However, unlike 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 other 
oversight bodies, the Board's disciplinary proceedings cannot be made 
public without consent from the parties involved.

[[Page S2523]]

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 cannot publicize the results of its disciplinary 
proceedings until after the appeals process has been completely 
exhausted, which can often take several years.
  Concealing PCAOB disciplinary proceedings from the public creates 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 used this loophole to shield 
themselves from public scrutiny and accountability. Former PCAOB 
Chairman James Doty repeatedly stated in testimony provided to both the 
Senate and House of Representatives 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 continued to issue no fewer than 29 
additional audit reports on public companies without those companies 
knowing that it was subject to a PCAOB disciplinary proceeding. 
Disturbingly, these investors and the public company clients of that 
audit firm were deprived of important information about the proceeding 
against the firm and the substance of any violations. There are other 
critical reasons why the Board's enforcement proceedings should be open 
and transparent.
  First, the incentive to litigate cases in order to shield conduct 
from public scrutiny as long as possible frustrates the process and 
requires both litigants and the PCAOB to expend needless resources.
  Second, agencies such as the SEC have found that open and transparent 
disciplinary proceedings can be valuable because they inform peer audit 
firms of the type of activity that could lead 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 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 transparency and accountability of audit firms subject to 
PCAOB disciplinary proceedings bolsters investor confidence in our 
financial markets and better protects 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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