Audit Board Urged to Rein In Plan to Curb Misleading Marketing

CPAs pressed the US audit board to scale back a proposal meant to prevent firms from falsely marketing their registration with the regulator as an endorsement of their work.

The bar for possible enforcement actions is set too low under draft rules the Public Company Accounting Oversight Board released in February, exposing firms to greater legal liability, auditors and accounting groups told the regulator in feedback submitted through April 15. The rules should instead focus on clear cases where a firm promotes registration with PCAOB as a seal of approval, some comment letters said.

“The rule should not apply to unintentional conduct when a registered accounting firm or an associated person is making a statement of fact,” PwC LLP, also known as PricewaterhouseCoopers, said in a letter to the audit board. The letter was one of 18 submissions on the marketing proposal.

Auditors to crypto companies, in particular, have come under scrutiny for blurring the lines between their regulated work for listed companies and their reserves testing services that vet whether crypto assets exist on a blockchain and are backed by collateral. The PCAOB has said that firms that highlight their registration with the board in a proof of reserves report would mislead investors unless they state that the board doesn’t oversee such services.

Almost half of firms registered with the regulator don’t actively audit listed companies or broker-dealers and are not subject to routine board inspections. The board’s proposal aims to end the practice of firms perennially registering with the board and touting that connection to prospective clients.

But even firms that are subject to board inspections and actively audit companies or broker-dealers have promoted their board registration as a mark of quality despite poor inspection records, according to CPA Club Inc., which provides subscription-based staffing to US audit firms.

To combat misleading marketing, the board should impose tougher monetary penalties for those who flout the rules, CPA Club said. The staffing company also pushed for greater transparency, urging the board to require firms to link to their PCAOB profile page and include a summary of inspection findings on their websites.

Regulatory Conflicts

Grant Thornton LLP and KPMG LLP asked the board to revise how firms would address whether their work is subject to PCAOB inspections in the audit report. The firms also asked the board to address how the proposal would align with other regulatory requirements—like Securities and Exchange Commission rules—to reduce investor confusion when firms provide services guided by PCAOB standards but that are outside the scope of the board’s oversight.

Auditors rely on the board’s standards to provide audits for companies planning to go public by merging with a blank check company or for draft registration statements that have not been made public, for example. Those audits and other services fall outside the board’s narrow reach.

The Illinois CPA Society and the US Chamber of Commerce called the proposal too “broad” in scope in separate letters to the PCAOB.

“Rulemaking and enforcement are not substitutes for stakeholder knowledge and familiarity with the public accounting firm market or related PCAOB oversight,” the Illinois Society wrote, warning that the proposed rule may fall short of its intended goal. That could “result in undue costs and repercussions for accounting firms.”

The Council of Institutional Investors also pushed the board to educate investors and the public about its registration and enforcement work.

State accounting regulators support a proposal to automatically consider firms as withdrawn from registration if they haven’t paid their registration fees and didn’t submit an annual report to the board for two consecutive years. The National Association of State Boards of Accountancy also pushed for stricter compliance and said the board should deregister firms after just one year or if firms don’t pay the fee or fail to file an annual report.