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A recent letter from Sen. Elizabeth Warren (D-Mass) and Sen. Sheldon Whitehouse (D-RI) indicates that those two senators believe that the PCAOB is “all hat and no cattle” when it comes to addressing the problem of audit deficiencies. In 2023, PCAOB Chair Erica Williams blasted the approximately 40% audit deficiency rate found in a PCAOB staff report as “completely unacceptable” and highlighted the PCAOB’s efforts to address the problem.  Earlier this year, in response to a new report indicating that audit deficiencies among Big 4 firms had stabilized, Williams observed that while the inspection results were still unacceptable, they “point to some small signs of movement in the right direction.”

An excerpt from the senators’ letter indicates that this response – and comments from another PCAOB board member concerning the most recent inspection report – didn’t sit too well with them:

In a statement upon the release of the report, Chair Williams commented that: “These inspection results point to some small signs of movement in the right direction.” This is the wrong conclusion to draw from an embarrassing and intolerable set of findings. Even more troubling is the PCAOB’s attribution of these systemically high failure rates—which appears to affect virtually all auditors—to “more isolated incidents” and outliers.

And at least one other PCAOB board member appears to be focused on downplaying and misdirecting attention from these atrocious findings. Last month, Board Member Christina Ho denied that the inspection results were a problem, instead claiming that “there is another side to the story,” and that “PCAOB has become overzealous in its enforcement program,” falsely claiming that the inspection results “lump[] all deficiencies together without a qualitative assessment of their severity.”

The letter says that the most recent inspection results on audit deficiencies “raise fresh questions about the accuracy and utility of public company audits and about the PCAOB’s ability to carry out its statutory role as auditor of the auditors.” It goes on to allege that either the standards established by the PCAOB are inadequate or the PCAOB is “failing to establish accountability for firms that do not meet them.” The senators’ letter then poses a series of pointed questions concerning the PCAOB’s efforts to hold firms accountable and seeking specific information on its enforcement program by October 23rd.

It’s worth noting that the last time Sen. Warren and her colleagues looked under the hood at the PCAOB, they ended up persuading SEC Chair Gary Gensler to clean house, so stay tuned. As we blogged at the time of that shakeup, the PCAOB had already proven to be a durable political football, and it appears that little has changed since then.

– John Jenkins