WASHINGTON (Reuters) - The U.S. audit watchdog will revive a controversial proposal on Wednesday that would require accounting firms to disclose the names of individual partners who work on company audits.
The Public Company Accounting Oversight Board’s plan has been largely dormant since it was fist suggested in October 2011.
The proposal became a talking point for debate again earlier this year after veteran KPMG auditor Scott London pleaded guilty to allegations he passed confidential details about companies he audited to a friend who used them to make profitable trades.
The accountant admitted he gave jeweler Bryan Shaw inside information regarding at least 14 earnings announcements or acquisitions by KPMG clients, including Herbalife Ltd and United Rentals Inc. Shaw also pleaded guilty in the case.
When the company initially disclosed it had parted ways with London and two corporate audit clients, however, his identity at first remained a mystery.
Critics said at the time that, had the PCAOB proposal been in place, his name would have been disclosed much sooner.
Such information, they said, would have been helpful for shareholders of other companies whose books London audited.
The PCAOB’s original 2011 plan called for new rules requiring audit firms to name the engagement partner in audit reports, as well as in annual report forms.
It also called for other transparency measures to address cases in which an accounting firm does not perform 100 percent of the work on an audit. This included requiring audit firms to disclose who else participated in the audit if the work exceeded a certain amount of time.
The Big Four audit firms, KPMG, PricewaterhouseCoopers, Deloitte & Touche and Ernst & Young, have opposed naming audit partners, saying it would be of little use to investors, could increase legal liability and deter auditors from tackling high-risk audit jobs.
The PCAOB, a board created by Congress in the 2002 Sarbanes-Oxley Act in the wake of major accounting scandals, plans to re-propose a tweaked version of the 2011 plan at an open public meeting on Wednesday morning.
It was not immediately clear exactly how the new version would differ from the original, although it is still expected to require the name of the partner to be disclosed in the audit report.
In addition to reproposing the disclosure of the audit partner’s identity, the PCAOB also plans to put the final touches on rules governing the audits of securities broker-dealers.
Prior to the 2010 Dodd-Frank Wall Street reform law, the PCAOB only had authority to inspect and write standards for auditors of public companies.
Congress expanded that authority to include auditors of broker-dealers in the wake of the scandal caused by Bernard Madoff’s $65 billion Ponzi scheme.
Madoff managed to dupe investors for many years in part thanks to his auditor, David Friehling of Friehling & Horowitz, who operated his firm from a strip mall in New City, New York. Friehling pleaded guilty in 2009 to fraud charges, but claimed he did not know Madoff was running a Ponzi scheme.
The PCAOB adopted major reforms in October specifically aimed at auditors of broker-dealers that hold custody of client funds. These include requiring them to conduct internal control reviews and ensuring compliance with net capital rules.
Wednesday’s final rules will expand the current requirements for public company auditors to include broker-dealer auditors.
Reporting by Sarah N. Lynch. Editing by Andre Grenon