The head of the Public Company Accounting Oversight Board in US says that there's no safety net protecting the Big Four auditing firms in the wake of Arthur Andersen's collapse last year.
Andersen's demise, following an obstruction of justice conviction over the shredding of Enron documents, has been criticized in the accounting profession because it reduced viable global auditing firms in the USA from five to four.
But William McDonough, the former Federal Reserve banker who took over as head of the PCAOB last June, says that the continued success of the nation's Big Four auditing firms rests squarely on their own shoulders.
''It's very important that the four large firms understand that staying in business is their responsibility, not the PCAOB's,'' said McDonough in an interview Tuesday. McDonough, who as a banker says he never bought into the notion that some banks were too big to fail, says the major firms have cooperated with the PCAOB's inspections and know the oversight board is not there to prop them up.
Tuesday, the PCAOB adopted rules mandating inspections of the accounting firms that audit publicly traded companies. Firms that audit more than 100 public companies will be inspected annually. Smaller auditors will be inspected at least once every three years.
If the PCAOB finds problems, the offending auditing firm will have one year to fix them, after which the firm will be publicly identified as non-compliant with the board.
The PCAOB also proposed new rules calling for auditors to get a better idea of whether the numbers that clients are reporting to them are, in fact, accurate.
In the wake of the accounting scandals of recent years, many auditors have claimed that they, too, were deceived when rogue executives fed them false numbers. The proposed rules are an attempt to address that gap by forcing auditors to be more actively involved with how companies generate their internal numbers.