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Archive for the ‘PCAOB’ Category

Sarah N. Lynch is a young business reporter for Reuters.  She has previously published such good work that I’ve started looking for her by-line.  Her story on Friday, June 29, 2012 alerts us to an important auditing issue.

Lynch’s story is “SEC official backs shareholders on auditor independence.”  In this story, she reports on a speech by SEC Commissioner Louis A Aguilar (Democrat) to the NAPPA 2012 Legal Education Conference in Philadelphia, PA, on June 27, 2012.

Aguilar’s speech is noteworthy for two reasons.  First, it was one of two speeches last week by SEC Commissioners in which it was emphasized that audit quality is deteriorating and investor confidence in securities markets is waning.  Second, Commissioner Aguilar disagrees with SEC staffers who have blocked shareholder proposals to rotate auditors at their company or to promote other forms of improving auditor quality.

Really?  Companies have received at least two dozen shareholder proposals to vote on auditor rotation and increased auditor disclosure, and the SEC’s Division of Corporation Finance let companies block them from shareholder vote?  Aguilar’s comments on this are highlighted below.

It is apparent that pressure is being directed at the PCAOB from the lofty heights of the Commissioners of the SEC.

Aguilar’s speech is important.  To promote your reading of relevant portions, I’m publishing them in this blog post.

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Potty Mouth Carl Levin (Senator and Chair of Senate Permanent Subcommittee on Investigations), famous for his “sh*tty deal” comments to Goldman Sachs executives, has sent a letter (Jan. 3, 2012) to the PCAOB in support of a proposal to require that the lead partner’s name be disclosed (with signature) within the audit opinion attached to annual corporate annual financial statements and listed in an audit firm’s annual report to the PCAOB.

Levin prefaces his support with the following statement,

Poor quality audits of public corporations continue to plague the U.S. investment community, allowing misleading accounting, outright frauds, and substantial losses to occur … These prominent audit failures indicate that more needs to be done to encourage accurate and effective audits of public corporations and increase accountability for poor auditing practices.

Well said, Senator Levin.  It is not only bloggers that note the poor quality of large audit firm audits of large publicly traded corporations, it is also key members of governmental oversight.  The only people who don’t agree are the leaders and partners of the large audit firms that provide the poor quality audits.  They state that audit quality is fine, and nothing should be done that could negatively affect it (such as naming the lead audit partner or mandating auditor rotation).

Levin notes five reasons for supporting that the lead auditor’s name be disclosed:

  1. It would increase audit quality.  Lead auditors would now perceive that they are more accountable for their work, and would strive to avoid generating poor audit opinions.
  2. It would strengthen audit transparency by shedding light on the audit process and key communicators.  It would make it possible for the public to evaluate senior audit officials.
  3. It would strengthen partner and audit firm accountability for audit failures.  This would signal regulatory intent that both firm and partner are to be held accountable.
  4. It would increase auditor independence by making it possible to identify when changes in key personnel are made.
  5. Key corporate officers now must sign public reports and disclosures.  This proposal would increase auditor accountability so that it would be in line with other financial professionals.

Senator Levin, I think you have done an excellent job in reasoning through a controversial issue.

Thanks to Caleb Newquist of Going Concern for the tip.

Debit and credit –  – David Albrecht


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Sarah N. Lynch has a nicely written article up today at Reuters Canadian.  It’s nice to see her by-line again.  She has always written competently about accounting.

PCAOB Chair James Doty

In “SEC to Put U.S. Audit Watchdog Under Microscope,” January 12, 2012, Lynch reports that PCAOB chair James Doty will be presenting the PCAOB budget request of $227 million before the SEC in an opening meeting tomorrow.

She reports that this is the first open meeting on a PCAOB budget since 2008.  She then goes on to identify several related issues before leaving the reader to conclude that this budget review shouldn’t be a big deal.

First, she reports on the context of the budget review.  At this time the PCAOB is working on several high profile and controversial issues:  auditor rotation, audit partner name on auditor opinion, inspection of U.S. firms, and attempted inspection of foreign firms.  Questions on any of these issues might be asked of Doty.  In addition, salaries at the PCAOB are high for government work, with Doty making four times what boss Mary Schapiro receives.

Then, she reports that Doty commands “respect from both sides of the aisle,” and should represent well both himself and the PCAOB.

Then, she reports that the SEC publicly reviewed the PCAOB budget last in 2008, when Republican Commissioners  Cynthia Glassman and Paul Atkin were critical of the Board.  The current hearing has been called at the request of new Republican Commissioner Dan Gallagher.

Due to scheduling issues, I will not be able to watch the meeting.  It should be interesting to see if political interests will use any SEC commissioners to bring pressure on the PCAOB as it considers its controversial issues.

Debit and credit – – David Albrecht


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