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Audit Secrets Will Soon Be Spilled

Auditors being investigated will no longer be able to keep that fact under wraps.

By Robert Schmidt & Tony Capaccio | February 05, 2019 at 05:50 PM

The Defense Department will soon force accounting firms it hires to disclose investigations they face, a requirement that chips away at federal protections that have long helped keep flawed audits of public companies under wraps. The directive was slipped without notice into last August’s $716 billion defense bill by Rhode Island Senator Jack Reed. It could have a significant impact on the many accounting firms that bid for auditing and consulting work at the Pentagon.

None of the Big 4—PwC, Ernst & Young, KPMG, and Deloitte—was aware of the measure when it became law, according to lobbyists and congressional staff, and now these firms are belatedly trying to scale it back. One major concern: The rule is slated to take effect in mid-February, and the Defense Department hasn’t provided details on how it intends to implement the requirement.

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