The U.S. audit regulator is getting tougher on rule-breaking accountants after years of criticism for its alleged light touch. But there are limits to how much it can change.

The shift is being led by the new chairwoman of the Public Company Accounting Oversight Board, Erica Williams, who said, "When people cheat, you need to. . .make sure that there are serious consequences."

This month, the PCAOB announced its biggest-ever fine against an individual, pledged more sweeps to root out wrongdoing by audit firms, and vowed to boot out bad actors from the profession.

Ms. Williams took over the regulator in January, becoming the first woman and first person of color to head the watchdog. "We're not going to be limited to just the types of cases we've brought in the past or the penalties that we've sought in the past," Ms. Williams said.

The PCAOB's data this year show that it is significantly increasing penalties but also show how small the penalties had been. The average penalty against an individual so far this year, for example, is $44,333, more than six times the $6,996 average for 2017 through 2021, according to the regulator.

Lynn Turner, a former chief accountant at the SEC, said the very low historic level of PCAOB fines means claims of record-setting punishments are meaningless. "What is relevant to investors is whether fines are large enough to deter poor performance by auditors," he said.

The rules created for the regulator, some the result of lobbying by big accounting firms, constrain its actions.

"There are limits on how much the PCAOB can dial up enforcement," said Daniel Goelzer, a former acting chairman of the regulator.

Some argue it makes little sense to have a separate audit regulator when the SEC also doesmuch of that job. Hester Peirce, a Republican SEC commissioner, this month said the PCAOB's $23 million annual enforcement budget could be used by the SEC to pursue serious cases, rather than chasing after relatively minor violations.

Ms. Williams declined to comment on the SEC commissioner's remarks but said investors were benefiting from the work of both regulators.

Ms. Williams said he would support changing the law to make the PCAOB's disciplinary proceedings public, in line with the way the SEC and many other regulators operate.

Credit: By Jean Eaglesham

Word count: 384
 

Copyright 2022 Dow Jones & Company, Inc. All Rights Reserved.