Oversight Board Might Withhold Findings

The new U.S. accounting oversight board proposed rules Monday that would allow the findings of some of its inspections of accounting firms to remain secret.

The Public Company Accounting Oversight Board voted unanimously to issue the proposed rules, which still must be approved by the Securities and Exchange Commission.

As required by the Sarbanes-Oxley corporate-governance law, which created the oversight board, inspection reports that are critical of an accounting firm won’t be made public unless the accounting firm fails to correct deficiencies within 12 months.

“Because of the limitations of the statute, the board is in a position of not being able to say anything negative for a year,” oversight board Chairman William McDonough said.

The proposed rules, which also call for a nonpublic disciplinary process for auditors, could put the board in the awkward position of being silent about accounting firms that have problems.

“We are between a rock and a hard place as far as our goal of transparency to the public,” board member Kayla Gillan said.

The oversight board’s inspection and disciplinary rules also would apply to non-U.S. accounting firms and auditors, although McDonough said the board was in “very active discussions” with regulators from the European Commission, Canada and Japan over the scope of those regulatory powers.

The board will conduct yearly inspections of all accounting firms that audit more than 100 publicly traded companies. Smaller firms will be inspected every three years.

The proposed rules will undergo public comment until Aug. 18.