The US Securities and Exchange Commission (SEC) still has to approve the scheme finalized by the Public Company Accounting Oversight Board (PCAOB) that provides for routine inspections and special examinations whenever the PCAOB decides they are necessary, according to a Dow Jones report.
If such an examination comes up with anything potentially illegal, inspectors are authorized to report it to the SEC, state regulators and other law enforcement officials. Penalties could include disciplinary action by the PCAOB that was created by Congress in 2002 to combat corporate accounting scandals.
Inspection results for individual firms generally won’t become public immediately, but will be disclosed after a year only if problems are not corrected. So-called “no-name” reports that detail inspection findings overall – without identifying firms by name – are permitted under the final rule.
Separately, the board voted to ask for public comment for 45 days on a much-anticipated proposal on how accounting firms should evaluate internal controls at public companies they audit.
Corporate executives face a new requirement to take a look at the company’s internal controls once a year, subject to a further check by their independent auditor. Congress mandated the requirements under the Sarbanes-Oxley Act of 2002, leaving the details to regulators. The SEC has already issued its rules in this area, delegating auditors’ rules to the new oversight board.
Internal control rules take effect for most US companies starting in mid-2004. Smaller companies and those outside the US won’t come under the same rules until April 2005.
In a controversial move, corporate audit committees will undergo scrutiny as well, as the proposal requires auditors to evaluate them as part of their overall look at a company’s internal controls.