The Securities and Exchange Commission appears to want to hold the accounting industry far more accountable for detecting fraud in broker-dealers.

Chairman Mary L. Schapiro said the Securities and Exchange Commission will allow the Public Company Accounting Oversight Board to take on new powers for inspecting the audits of broker-dealers.

That suggests that the SEC may take action against auditors in financial fraud cases even when the auditor followed industry rules and guidelines. It is unclear whether auditors would be held liable for losses resulting to shareholders.

“We continue to demonstrate our willingness to prosecute those who betray the trust of the public markets,” Schapiro said in a speech at the American Institute of Certified Public Accountants conference in Washington on December 6. “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.”

The SEC will update a 30-year-old regulation called Rule 17a-5 that requires auditors of firms that control client assets to provide the broker-dealer with assurance that reported numbers are accurate, Schapiro told the AICPA.  

The Public Company Accounting Oversight Board is a private-sector, non-profit organization, created by the Sarbanes-Oxley Act of 2002, to oversee the auditors of companies to protect the interests of investors. The board has an enforcement division that can bring disciplinary actions against auditors but since it was launched it has only done so 31 times.

Schapiro said the SEC is evaluating executives to fill the year old vacancy at the top of the board. The PCAOB has operated without a full board since Mark Olson stepped down as chairman in 2009. In addition, two other board members have stayed past their terms. Board members Charles D. Niemeier, whose term expired more than two years ago, and Bill Gradison, whose appointment ended in October, have agreed to stay on until they are replaced.

The SEC has been expanding its oversight of broker-dealers after investors over $50 billion in a Ponzi scheme conducted by Bernard Madoff, whose New York-based investment firm which also acted as its own custodian and clearing firm. Madoff, arrested in December 2008, is serving a 150-year prison sentence for the fraud.