SEC to increase the responsibility of auditors

14 12 2010

Bloomberg news is reporting that the SEC is looking to update the current broker-dealer audit rules that may have the effect of putting auditor who control their clients assets, on the hook for the accuracy of their reports, as a part of the Dodd-Frank reforms of the financial industry.

As part of the plan, Ms. Schapiro said, the commission is laying the groundwork for implementing new powers spelled out in the Dodd-Frank Act that call for the Public Company Accounting Oversight Board to inspect auditors of all broker-dealers.

The SEC is expanding scrutiny of broker-dealers after investors lost billions of dollars in a Ponzi scheme conducted by Bernard Madoff, whose investment advisory firm also acted as a custodian. The agency last December voted to require that money managers who hold customer cash and securities be subjected to surprise inspections.

“We continue to demonstrate our willingness to prosecute those who betray the trust of the public markets,” Ms. Schapiro said. “But bringing actions after the fact is no substitute for full and honest disclosure at the outset. Enforcement actions are cold comfort for investors who lost their savings after relying on misrepresentations or half-truths.”

While this is directly looks to be a response to the Madoff Ponzi scheme, the roots of this type of compliance is deeper.  Lest we forget the role played by the accounting firm Arthur Anderson in the Enron Scandal.  This type of regulation seems to build on the record keeping and reporting requirements of Sarbanes-Oxely.