Wall Street regulator tightens rules on accounting carelessness.

TLDR:

• Wall Street regulator approves tougher rules for accounting negligence.
• SEC voted 3-2 to approve a rule change by PCAOB.

Key Elements of the Article:

In a split vote, the SEC approved new rules that make it easier for an audit watchdog to hold individuals responsible for audit firms’ violations. The rule change by the PCAOB allows “associated persons” to be held liable for negligence for their contributions to a firm’s violations. This change harmonizes auditor liability standards between the PCAOB and SEC, ensuring auditors and their firms are held to the same standard. However, Republican commissioners questioned the need for the rule, arguing that existing rules already address individual misconduct.

The creation of the PCAOB in 2002 after Enron-era scandals aimed to oversee audit firms’ work, with rules subject to SEC approval. The SEC is also considering new PCAOB accounting standards on technology-assisted audits and general auditor responsibilities. The approval of the tougher rule for accounting negligence may impact recruitment in an industry already in need of new talent.