A top U.S. audit regulator, Jeanette Franzel, a board member of the PCAOB is sounding the alarm over what she fears may be a false stamp of approval that some accounting firms are using as they market themselves to potential clients.
A growing number of firms register with the PCAOB, the U.S. body that polices auditors, but are never actually inspected, PCAOB member Franzel said in a recent interview.
Some of these firms tout their PCAOB registration on their websites to drum up business.
This raises concerns for investors, says Franzel, because registration with the board may give customers a false impression that every audit firm is subject to strict supervision.
The PCAOB has limited jurisdiction over the kinds of audits it can regulate, but any firm can pay a fee to register with the board. Annual fees are as low as $500.
“There are legitimate reasons for firms to be registered with the PCAOB even if they are not currently performing work that is subject to our oversight,” says Franzel. “But I become concerned when I see firms using their PCAOB registration as a marketing tool to tout their audit quality when their only interaction with the PCAOB has been to file registration forms and pay annual fees.”
While auditors are not specifically charged with rooting out fraud, their independent reviews can help ensure that shareholders are not misled by company management or that unscrupulous brokers are not misappropriating customers’ money.