The Dodd-Frank Act was established to ensure that consumers are protected in their financial dealings and that Wall Street’s and other financial institutions’ activities become more transparent and appropriately regulated. It was also about eliminating the risk that arises from institutions being deemed “too big to fail.” The reforms were initiated by Dodd-Frank to avert such a financial debacle in the future.
How It Impacts the Accounting Industry
- U.S. Securities and Exchange Commission (SEC). Congress has asked the SEC to constantly monitor and oversee all domestic as well as international proposals and developments inclusive of the insurance and accounting industries. The SEC has to report back to Congress annually about all new proposals that affect the financial industries and how they affect the stability therein.
In addition, the SEC has also been charged with launching a study that explores financial literacy among investors and provides ways on how to improve the content and timing of disclosures to investors. This study has to be conducted and the results disclosed to the House Financial Services and Senate Banking Committees within the next two years.
Additionally, the SEC will be conducting a study through public commentary, in which it will analyze the need and scope of having a Private Rights Action section under the antifraud provisions. This study, which has to be completed within the next 18 months, will detail the impact of such a section on institutional investors and the effects of such a section on the international community and securities fraud at large.
- U.S. Government Accountability Office (GAO). The GAO has to study and report back within six months’ of the Act’s enactment how regulation of financial planners including those who perform income-tax planning lapsed and recommend how financial planners should be overseen and regulated going forward.
The GAO will also be conducting a study to determine whether those issuers (non-accelerated filers) that are exempted from section 404(b) of SOX (independent attestation of management assertions regarding the effectiveness of internal controls for financial reporting) have fewer or more restatements of published accounting statements than those who must comply, how the capital cost compares for exempt issuers, as well as whether there is a clear difference in investor confidence between the two groups.
- Public Company Accounting Oversight Board (PCAOB). The Board has been authorized to create a program through which it can monitor auditors of nonpublic broker-dealers.
In addition, in accordance to Section 981, the PCAOB also has the authority to share its inspection and investigative reports with non-U.S. regulators.
“This provision brings a whole new segment of the accounting profession under federal oversight for certain activities. Many broker dealers are not publicly registered companies so the audits of these companies have not been subject to PCAOB oversight,” said Cynthia Fornelli, executive director, Center for Audit Quality. “In light of their new responsibilities, the PCAOB is considering developing new audit standards and will need to establish an inspection program for this discrete area of practice,” she added.
- Consumer Financial Protection Bureau (CFPB). CPAs, those who work for CPA firms as well as non-CPA partners who work at CPA firms are exempt from being regulated by CFPB provided the services they provide are considered customary and usual. These services would include accounting, tax and advisory among other services that come under CFPB’s jurisdiction. However, should these same CPAs be providing ancillary services to consumers, such as tax refund anticipation loans, these CPAs, partners and individuals working for CPA firms will not be exempt from CFPB regulation.
So who should be most worried about this Act?
“The most immediate impact we see will be on those CPA firms that audit nonpublic broker dealers. The Act requires auditors of nonpublic broker dealers to be registered with and inspected by the PCAOB. PCAOB also has the authority to exempt classes of auditors, if they deem it appropriate,” pointed out Peter Kravitz, director of Congressional & Political Affairs at the AICPA. “AICPA has urged that introducing broker-dealers and their auditors be exempted because they never handle client funds and therefore the burden would far exceed any benefit to investors (the purpose of the provision is to try and stop a Madoff type of fraud). If client funds are not held by the introducing broker-dealer, there are no client funds at risk. The audit of introducing broker dealers does not benefit the investor.”
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Sukanya Mitra is managing editor of the AICPA Insider™ e-newsletter group.