Securities and Exchange Commission: Actions Needed to Improve Public Company Accounting Oversight Board Selection Process
GAO-03-339
Published: Dec 19, 2002. Publicly Released: Dec 19, 2002.
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Highlights
The Sarbanes-Oxley Act of 2002 created, among other things, the Public Company Accounting Oversight Board (PCAOB) to oversee audits of public companies. A divided Securities and Exchange Commission (SEC) appointed the first PCAOB on October 25, 2002. Amid allegations that the SEC Chairman withheld relevant information from the other Commissioners concerning the suitability of the newly appointed PCAOB chairman, GAO was asked to examine SEC's selection process; determine whether the SEC Chairman withheld information from other Commissioners; determine what vetting of candidates took place; and identify what actions led to breakdowns in the process.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| United States Securities and Exchange Commission | Much can be done to improve the selection and vetting process. Before any additional members are appointed to the Public Company Accounting Oversight Board (PCAOB), especially the chairman, the Commission should reach agreement and document the process to be followed, the sequence and timing of key steps, and the roles to be played by the Commission and the staff in the selection and vetting of candidates. |
Closed – Implemented
Following the issuance of GAO's report, SEC issued new guidelines for the selection and appointment of a new chairman to the Public Company Oversight Board. These new procedures included completing the background investigation before appointing the nominee as chairman to the Board.
|
| United States Securities and Exchange Commission | Much can be done to improve the selection and vetting process. Before any additional members are appointed to the PCAOB, especially the chairman, the Commission should develop agreed-upon, detailed selection criteria for PCAOB members and the chairman that fully embrace the principles articulated in the Sarbanes-Oxley Act of 2002. |
Closed – Implemented
SEC adopted guidance on nominating PCAOB board members, which included specific selection criteria that could be considered.
|
| United States Securities and Exchange Commission | Much can be done to improve the selection and vetting process. Before any additional members are appointed to the PCAOB, especially the chairman, the Commission should develop a vetting process that ensures that before an applicant is brought to the Commission for serious consideration, certain minimum background and reference checks are performed to ensure that the individual has no potential legal or ethical impairments and ensure that the vetting process is completed before the Commission votes to appoint members to the PCAOB. |
Closed – Implemented
SEC's new procedures includes vetting prior to appointment to the Board by the Commission.
|
| United States Securities and Exchange Commission | Much can be done to improve the selection and vetting process. Before any additional members are appointed to the PCAOB, especially the chairman, the Commission should determine what candidate information should be documented, analyzed, and shared among the Commission and staff. |
Closed – Implemented
SEC's new procedures include selection criteria to be used in selecting PCAOB members and vetting in advance of appointment.
|
| United States Securities and Exchange Commission | The SEC Chairman should direct staff involved in the PCAOB selection process to make greater use of available technology to conduct necessary background checks and to generate sufficient details on the qualifications of potential applicants so that the Commission can make informed decisions on the fitness of potential applicants to be PCAOB members. |
Closed – Not Implemented
SEC's process requires that potential nominees undergo preliminary background checks prior to being interview by the Commission.
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