Warren, Whitehouse Slam Watchdog’s Oversight of Audit Quality

The US audit industry watchdog is under fire from Democratic Sens. Elizabeth Warren and Sheldon Whitehouse for allowing what they called an “embarrassing” batch of firm inspection results.

The Public Company Accounting Oversight Board found flaws in almost half of the audits it reviewed last year at accounting firms that are under its purview. The board is tasked with overseeing the firms that are hired to vet public companies’ financial statements.

“The findings of the review cast doubt upon the agency’s ability to do its job,” Warren (D-Mass.) and Whitehouse (D-R.I.) wrote in a Wednesday letter to PCAOB Chair Erica Williams. The lawmakers are both members of the Senate Finance Committee.

Their letter noted it’s not the first time they’ve raised concerns about the watchdog’s effectiveness and its ability to help protect public company investors. Warren and Whitehouse pressed Williams to respond with details on how the board is holding auditors accountable for ongoing problems. They also asked how newly approved audit standards will help address quality concerns.

A PCAOB spokesperson said the board appreciates the letter and will respond directly to the senators.

“We share the same commitment to quality audits, and we will continue to work with them on our shared goal of protecting investors,” the spokesperson said.

Enforcement Strategy

In the most recent round of inspections for 2023, smaller firms struggled with US audit standards compliance more than larger firms.

For instance, the regulator found flaws in about one-quarter of audits inspected at the four biggest US accounting firms—Deloitte, Ernst & Young, KPMG, and PwC—and in more than half of Grant Thornton’s inspected audits.

Warren and Whitehouse called out BDO’s results in particular. Inspectors reported flaws in almost 90% of the BDO audits they reviewed in 2023, an increase from the year before. The firm has trimmed its audit client list as part of an effort to repair its lagging track record.

The senators questioned why the PCAOB hasn’t barred BDO from auditing public companies and asked whether investors can have confidence in the quality of the firm’s audits.

Their letter also criticized the board’s enforcement strategy, suggesting a $2 million fine the board levied against BDO last year is “a drop in the bucket” compared to the firm’s $2.8 billion in US revenues for 2023.

Under Williams’s leadership, the board has brought a record number of enforcement cases and issued record-breaking financial penalties over issues such as firms cheating on training exams.