Warren, Whitehouse Call Out Accounting Regulator for “Profoundly Troubling” Failures, “Unacceptable” Error Rates in Public Company Audits
Nearly half of 2023 audits had significant deficiencies.
“This is an astonishing finding that calls for immediate action by the PCAOB—and careful review by regulators….(I)nvestors and the public essentially face a coin flip when it comes to whether they should believe and trust the results of public companies’ audits.”
Washington, D.C. – U.S. Senators Elizabeth Warren (D-Mass.) and Sheldon Whitehouse (D-R.I.), members of the Senate Committee on Finance, called on the Public Company Accounting Oversight Board (PCAOB) to establish stricter accountability for accounting firms with “unacceptable” deficiency rates. The PCAOB is charged with overseeing the audits of public companies to protect investors and provide the public with “informative, accurate, and independent audit reports." But the agency is not doing its job.
Last year, the PCAOB’s review of over 200 accounting firms’ audits found that 46% had errors so significant that that auditor “had not obtained sufficient appropriate audit evidence to support its opinion” about a public company’s financial statements and financial reporting. The findings of this review reveal a nearly complete failure by the agency and cast doubts on the auditing process that plays a crucial role for investors in publicly traded companies.
“[T]he findings of this new analysis reveal a nearly complete failure [by PCAOB], indicating that investors and the public essentially face a coin flip when it comes to whether they should believe and trust the results of public companies’ audits,” wrote Senators Warren and Whitehouse.
Yet, the PCAOB does not appear to recognize the seriousness of the problem. In fact, Chair Erica Williams said the report showed “small signs of movement in the right direction.” And Board Member Christina Ho downplayed the findings, asserting that “there is another side to the story.”
‘[T]his is the wrong conclusion to draw from an embarrassing and intolerable set of findings,” wrote Sens. Waren and Whitehouse.
“The PCAOB must do better. …Either [auditing] standards are inadequate—or the PCAOB is failing to establish accountability for firms that do not meet them. These are unacceptable failures by the PCAOB,” concluded the lawmakers.
The senators request clarification about how the PCAOB plans to hold auditors accountable for ongoing problems by October 23, 2024.
Senator Warren has led the charge to ensure the PCAOB is effective and accountable to the public:
- In January 2023, Senators Elizabeth Warren and Ron Wyden (D-Ore.) wrote to the PCAOB raising concerns about crypto accounting firms’ independence and methodology following reports of whitewashed audits of crypto firms with histories of malfeasance.
- In May 2021, Senators Elizabeth Warren and Bernie Sanders (I-Vt.) sent a letter to Security and Exchange Commission (SEC) Chair Gary Gensler requesting the SEC use its authority to immediately remove and replace the members of the PCAOB, which sets standards for audits of public company financial statements required under Sarbanes-Oxley.
- In April 2017, Senators Elizabeth Warren and Edward J. Markey (D-Mass.) wrote to PCAOB, raising questions and releasing new information about KPMG's role as the independent auditor of Wells Fargo during the time period in which thousands of Wells Fargo staff engaged in fraudulent behavior affecting millions of accounts.
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