Accounting Firms Get New Report Cards

The Public Company Accounting Oversight Board (PCAOB) is making it easier for CFOs to monitor the performance of their CPA firm. The board adopted rules requiring public accounting firms to submit reports at least on an annual basis that include fees, disciplinary actions, and other information that will be posted on the PCAOB Web site.

The new rules, which have been on the drawing board since the passage of the Sarbanes-Oxley Act in 2002 and stem from the Act's requirements, are subject to SEC approval; they will go into effect within 60 days of receiving the green light. All accounting firms will be required to file their first annual report covering the 12-month period ending March 31, 2009, by June 30 of next year.

The reports must include basic information about audit reports issued by the firm during the year as well as disciplinary actions against people who have joined the firm during that time. The reports must also include information about billing fees for publicly owned audit clients across diverse services categories as a percentage of total fees billed.

Besides the annual reports, public accounting firms may also be required to submit reports to PCAOB if a special event occurs. Special events that require additional reports include various types of legal, administrative, or disciplinary proceedings against the firm of individuals at the firm.

PCAOB already posts inspection reports it performs on audit firms but the new annual reports will include certain information previously kept confidential including the names of clients, reports WebCPA, which also reported that a PCAOB inspection report noted problems with nine audits performed by Deloitte & Touche last year. The PCAOB said that with two unidentified clients, Deloitte failed to identify a departure from GAAP that it should have addressed before issuing its audit report. In both cases, the clients incorrectly concluded that interest rate swaps qualified for hedge accounting using the short-cut method in FASB 133. PCAOB also said that in the case of another client, the firm failed to access the valuation of certain of the issuer's privately issued mortgage-backed security holdings.

PCAOB indicated that reporting requirements for accounting firms will likely be expanded in the future.