U.S. watchdog to revive proposal to name audit partner

Reuters

By Sarah N. Lynch

WASHINGTON, Dec 4 (Reuters) - The U.S. audit watchdog willrevive a controversial proposal on Wednesday that would requireaccounting firms to disclose the names of individual partnerswho work on company audits.

The Public Company Accounting Oversight Board's plan hasbeen largely dormant since it was fist suggested in October2011.

The proposal became a talking point for debate again earlierthis year after veteran KPMG auditor Scott Londonpleaded guilty to allegations he passed confidential detailsabout companies he audited to a friend who used them to makeprofitable trades.

The accountant admitted he gave jeweler Bryan Shaw insideinformation regarding at least 14 earnings announcements oracquisitions by KPMG clients, including Herbalife Ltd and United Rentals Inc. Shaw also pleaded guilty in thecase.

When the company initially disclosed it had parted ways with London and two corporate audit clients, however, his identityat first remained a mystery.

Critics said at the time that, had the PCAOB proposal beenin place, his name would have been disclosed much sooner.

Such information, they said, would have been helpful forshareholders of other companies whose books London audited.

The PCAOB's original 2011 plan called for new rulesrequiring audit firms to name the engagement partner in auditreports, as well as in annual report forms.

It also called for other transparency measures to addresscases in which an accounting firm does not perform 100 percentof the work on an audit. This included requiring audit firms todisclose who else participated in the audit if the work exceededa certain amount of time.

The Big Four audit firms, KPMG, PricewaterhouseCoopers, Deloitte & Touche and Ernst & Young, have opposed naming audit partners, saying it wouldbe of little use to investors, could increase legal liabilityand deter auditors from tackling high-risk audit jobs.

The PCAOB, a board created by Congress in the 2002Sarbanes-Oxley Act in the wake of major accounting scandals,plans to re-propose a tweaked version of the 2011 plan at anopen public meeting on Wednesday morning.

It was not immediately clear exactly how the new versionwould differ from the original, although it is still expected torequire the name of the partner to be disclosed in the auditreport.

VOTE ON BROKER AUDITS

In addition to reproposing the disclosure of the auditpartner's identity, the PCAOB also plans to put the finaltouches on rules governing the audits of securitiesbroker-dealers.

Prior to the 2010 Dodd-Frank Wall Street reform law, thePCAOB only had authority to inspect and write standards forauditors of public companies.

Congress expanded that authority to include auditors ofbroker-dealers in the wake of the scandal caused by BernardMadoff's $65 billion Ponzi scheme.

Madoff managed to dupe investors for many years in partthanks to his auditor, David Friehling of Friehling & Horowitz,who operated his firm from a strip mall in New City, New York.Friehling pleaded guilty in 2009 to fraud charges, but claimedhe did not know Madoff was running a Ponzi scheme.

The PCAOB adopted major reforms in October specificallyaimed at auditors of broker-dealers that hold custody of clientfunds. These include requiring them to conduct internal controlreviews and ensuring compliance with net capital rules.

Wednesday's final rules will expand the current requirements for public company auditors to include broker-dealer auditors.

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