20 Years of Litigation Reform for Accounting Firms
December 22, 2015, marked the 20th anniversary of the enactment of the Private Securities Litigation Reform Act. Enacted at the behest of accounting firms, the PSLRA was crafted to immunize accountants from securities fraud liability. The result over the last two decades has been a substantial erosion in the ability of investors to hold accounting firms accountable.
Does it surprise anyone that, with auditors no longer concerned about liability for conducting defective public company audits, the quality of those audits has deteriorated?
According to a recently released study by the Public Company Accounting Oversight Board, one out of every four audits of a publicly traded company has “significant deficiencies.” “Significant deficiencies” is a polite way of saying that the auditors didn’t do a thorough job and the evidence does not support the auditor’s opinion. The PCAOB is a nonprofit entity created by the Sarbanes-Oxley Act of 2002, legislation passed by Congress in the wake of the accounting scandal at Enron. PCAOB’s mission: to oversee the audits of public companies in order to protect and further the public interest in the preparation of informative, accurate and independent audit reports.
So how does the PCAOB—a board that’s supposed to protect investors’ interests—characterize its findings? Well, the PCAOB was neither outraged, nor appalled, but rather just a bit “concerned.”
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