(Reuters) – Wall Street’s top regulator on Monday gave a nod to new accounting standards set by a watchdog agency, part of an effort to allay concerns about the prevalence of poor-quality audits.
The five-member U.S. Securities and Exchange Commission voted 3-2, with Republican members objecting to what they said was a rushed drafting process and unnecessary burdens that would likely fall on smaller accounting firms.
THE TAKE
The U.S. Public Company Accounting Oversight Board (PCAOB), which was created by Congress in the wake of the Enron-era accounting scandals and whose rules and standards require SEC approval, took action this year to overhaul accounting rules and tighten standards.
IMPORTANT QUOTE
“The PCAOB found that 46% – nearly half – of the audit engagements it reviewed in 2023 fell short of obtaining sufficient and appropriate audit evidence,” said SEC Chairman Gary Gensler.
CONTEXT
The new standard, which the PCAOB adopted in May, will require registered accounting firms to identify, manage and continuously monitor audit quality control risks and will hold accounting firm management accountable if the firm fails to comply.
However, Republican members of the five-member U.S. Securities and Exchange Commission opposed the measure, saying it was hastily introduced and would place unnecessary burdens on smaller accounting firms.
This included a requirement that they design compliant quality control systems even if they do not currently conduct audits subject to PCAOB standards.
WHAT’S NEXT
The new standard should come into effect in December next year.
