By Chris Prentice
NEW YORK (Reuters) -The chair of the U.S. accounting watchdog on Thursday warned against drastic changes to oversight of public companies’ auditors, a day after Republican lawmakers advanced legislation to effectively eliminate the group.
Erica Williams, chair of the Public Company Accounting Oversight Board, said the organization is vital to the millions of Americans invested in U.S. capital markets. The nonprofit PCAOB was created in 2002 in the wake of a series of accounting scandals that led to the bankruptcies of Enron and WorldCom.
U.S. lawmakers on Wednesday voted in favor of draft legislation that would fold the organization’s responsibilities into the Securities and Exchange Commission, which currently oversees it. That plan will now move to discussion for a larger bill for both houses of Congress to consider.
Williams said the stakes were higher than ever for U.S. capital markets.
“The integrity of our markets is not inevitable,” she said in prepared remarks at an event at Baruch College in New York. “It takes vigilance to guard against negligence, recklessness, and fraud that threaten our system and the people who depend on it.”
The PCAOB has long faced criticism over its executives’ pay and the way it handles oversight of auditors, which some see as too aggressive.
“The PCAOB is a thoughtful experiment gone really bad,” said Jacob Frenkel, a former SEC lawyer who now represents audit firms and professionals in PCAOB investigations. He said its work creates issues for smaller auditors in particular.
Under Williams, the watchdog has levied record fines against auditors and investigated the audits of Hong Kong and China-based firms for the first time.
There were, on average, significant improvements in audit quality across audit firms last year, Williams said. That followed a rise in audit deficiencies in recent years, a worrying sign for the quality of public company financials.
“Still, while deficiency rates have dropped significantly, they remain too high,” Williams said. “Our work is far from over.”
PCAOB proponents said the group has been integral in improving audit quality and that folding the organization into the SEC could minimize oversight of auditors and their work verifying public companies’ financials.
That improvement has been key to rebuilding and boosting investor confidence, said Paul Munter, former Chief Accountant at the SEC.
“Developing and maintaining trust is an ongoing effort. If you don’t continue to focus on it, there’s great risk,” Munter said.
(Reporting by Chris Prentice in New York; Editing by Nia Williams)
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