The PCAOB slams auditors for poor fraud detection. Corporations can expect steep audit fees to follow.
In December 2005, the first time the Public Company Accounting Oversight Board released a special report based on its audit inspections, the topic was internal controls over financial reporting.
After that, all hell broke loose. When the Securities and Exchange Commission learned about how inept and costly a job auditors were doing under AS2, the PCAOB's internal-controls standard, the SEC pushed the accounting board to revise, and then replace, the rule.
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The issue was — and continues to be — a huge flashpoint in the regulation of auditors. The SEC had been using the audit standard as a default guideline for its own enforcement of Sarbox 404, the internal-controls provision for corporations. When the commission found AS2 sorely lacking, it came out with its own proposed guidance and pushed the PCAOB to replace the auditing rule. The oversight board will decide whether to enact its resulting plan, AS5, after a public comment period closes on February 26.
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