Accounting overseers soon may inspect all B-D auditors

The Public Company Accounting Oversight Board would have the authority to inspect auditors for all broker-dealer firms under legislation introduced Thursday by Rep. Paul Kanjorski, D-Pa., chairman of the House Financial Services Committee’s capital markets subcommittee. Currently, broker-dealers that aren’t public can be audited by firms that don’t come under the PCAOB’s jurisdiction. “If this legal loophole had not existed, Bernard Madoff’s storefront auditing company would have had to register with the PCAOB,” Mr. Kanjorski said in a statement. He was referring to Bernard L. Madoff LLC of New York, which the Securities and Exchange Commission charged in December with perpetrating a massive Ponzi scheme. The firm was audited by a small accounting firm, Friehling & Horowitz of New City, N.Y., that wasn’t under the PCAOB’s jurisdiction. “The purpose of the PCAOB is to protect the interests of investors, but under current law, it is unable to inspect and examine the work of the auditors of most broker-dealers,” Mr. Kanjorski said in the statement. The legislation would protect investors “by ensuring that every auditor of every broker-dealer is properly regulated and appropriately disciplined when they break the rules,” he said. Under a SEC ruling last year, the auditors of all broker-dealers must register with the PCAOB of Washington. But under current law, only the auditors of public broker-dealers are subject to disciplinary action by the PCAOB, the release said.