US: Accounting firms complain to watchdog

Publisher Name: 
Financial Times

The big four accounting firms are trying to water down plans by the US regulator to hold their staff responsible for violations of securities laws.

Deloitte, Ernst & Young, KPMG and PwC are pressing the Public Company Accounting Oversight Board to abandon its proposal to discipline individual accountants who through negligence cause their firms to breach laws.

The proposal by the PCAOB, set up under the Sarbanes-Oxley law of 2002, is central to the regulator's efforts to guard against wrongdoing by accountants in the wake of recent scandals.

In letters to the PCAOB, the firms said that the negligence proposal presented too low a threshold to justify disciplinary action by the regulator.

The PCAOB may hold a meeting this month to try and finalise the plans, which are included in a rule that would crack down on the ability of accounting firms to carry out lucrative tax work for audit clients.

The plans are essential if the PCAOB is adequately to police its auditor independence rules, which seek to ensure that accountants do not develop cosy relationships with clients.

However, KPMG said: "Such a standard would expose hundreds of thousands of individuals in the accounting field to the risk of severe sanctions for actions that might in some remote way be tied to a violation of the[Sarbanes-Oxley accounting and governance act] or of the securities laws."

Deloitte commented: "The proposed rule would have the consequence of making lawbreakers out of individuals caught by the 'negligence' standard, because any violation of the [proposed rule] would constitute a violation of the securities laws."

When it published the plans in December, the PCAOB said that accountants had an ethical obligation not to cause their firms to breach laws or rules.

However, the regulator added: "[The proposed rule] also makes clear that an [accountant's] ethical obligation is not merely to refrain from knowingly causing a violation but also to act with sufficient care to avoid negligently causing a violation."

The big four firms have told the PCAOB that accountants should only face disciplinary action if they knowingly caused their firms to breach the law.

The firms have also told the PCAOB that they broadly support its plans to limit the tax services that they can provide to audit clients.

They are backing plans to stop them providing certain tax avoidance products to their audit clients, even though KPMG, Ernst & Young and PwC have earned millions of dollars in fees from such work in the past.

This type of work has become untenable since a fierce crackdown on the tax avoidance industry was launched in 2002.

AMP Section Name:Corruption
  • 186 Financial Services, Insurance and Banking