The proposed new rules come amid frustration in Washington that audit firms are not living up to their duty to protect investors from wrongdoing by their clients.
Big Four accounting firms are fighting to block new rules in the US that would force them to take more responsibility for rooting out fraud at the companies they audit, the Financial Times has reported.
To counteract these new rules, Deloitte, PwC, EY and KPMG are trying to sign up their clients to oppose the plan by telling them their fees will increase if the changes go through.
According to the Financial Times, the firms have days to go before the end of a consultation period on the proposed new rules from the Public Company Accounting Oversight Board (PCAOB).
The proposed new rules, which would widen auditors’ responsibility to scrutinise whether a company is complying with laws and regulations, comes amid frustration in Washington that audit firms are not living up to their duty to protect investors from wrongdoing by their clients.
As a result, The Center for Audit Quality – a group that represents audit firms led by the Big Four – has asked corporate directors to sign on to a letter attacking the plan.
The Financial Times said it understands the letter stated that “auditors are not lawyers and as a result the proposed amendments would expand the auditor’s role to include knowledge and expertise outside their core competencies. The proposal will substantially increase the cost of the audit without a commensurate benefit.”
The proposed rules have proven controversial even within the PCAOB, where they won support from only three of the five board members. The two other members, who have previously worked for the Big Four, both opposed the changes, with one calling them a “breathtaking expansion of the auditors’ responsibilities”.
Lynn Turner, a former chief accountant of the Securities and Exchange Commission who is now an adviser to the PCAOB, said existing standards provided too much “wriggle room” for auditors to avoid confrontation with management when they see potentially illegal behaviour.
Turner said: “The current standard doesn’t serve the capital markets in any way, shape, fashion or form. I’ve told the people at the PCAOB that this is a war and the war has begun. It’ll test those three board members and we will see if they’ve got a spine or not.”
Business lobby groups and the accounting firms are expected to put in comment letters opposing the new rules before a deadline on 7 August.
Writes Corina Duma in Accountancy Today