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June 06, 2011

Comments

Steve

How could audit firms be independent while trying to sell other more profitable services (e.g., tax, consulting) to the companies they audit?

This is the fundamental question that the new PCAOB chair and Congress should address.

KPO'M

I think part of the issue is that the PCAOB's rulemaking, until recently, has been very slow, and their inspections process haphazard. All we get are reports that list a bunch of individual issues at each firm, but no way to compare the firms or conclude on the severity of each issue.

It hasn't done much to address the "check-the-box" culture of audits (which often breeds a forest-for-the-trees issue). Perhaps the PCAOB needs to use a statistical method of sampling audit engagements for inspection, and come up with criteria with which to grade and/or rank audit firms. We do it with restaurant inspections. Why not with audit firm inspections?

Superheater

Tom, I’m not sure why you find this encouraging.

Whatever his position, Jim Doty is a lawyer, not an accountant. He chairs an organization where the sole qualification for the majority of its board is to be unqualified. Of course, that requirement-was arguably nothing but an insidious takeover of (a part of) accountancy by lawyers. Having heard a speech to Washington lawyers on C-Span in November 2002 open with a joke that SOX was the securities attorneys full employment act, I think it was just that.

Are we to expect lawyers, with their compulsive disputatiousness to provide effective regulation with clarity and finality-or just more and more regulations and revisions, ala the IRS? Moreover, lawyers have influenced auditing for decades prior to SOX without clear public benefit but with increasing legal billings.

If regulation by “outsiders” is such a good idea, let’s create a federal legal oversight board required to have a majority of non-lawyers on its board. Can you imagine an accountant lecturing lawyers on their public responsibilities or reforming their profession? It’s not like lawyers are absent from the annals of Enron.

Whatever the problems of professional self-policing, the idea that government is a better solution defies the evidence. Indeed, the PCAOB’s “superior”, the SEC, was cited by the GAO for ACCOUNTING problems (again), had a widespread employee pornography scandal and spends inordinate effort considering and promoting IFRS. Of course, they snagged Martha Stewart, but ignored (ignored, not missed) Bernie Madoff.

The PCAOB is apparently here to stay, but what has it accomplished? Has it reformed auditing? No. Made it more effective or efficient? No. Produced great new standards? No. Stopped corporate implosions (in part) caused by accounting failures? No. If they found widespread fraud at a BIG 4 could they issue a “death penalty”? No.

We can only hope something will spur future lawmakers to reconsider Peekaboo’s propriety and utility- as happened with the Interstate Commerce Commission-and treat it similarly.

As for the speech, it contains nothing new. Montgomery (and other largely forgotten giants) ceaselessly enjoined their peers to be diligent. So there was a good old days-when real practitioners-not sinecured bureaucrats- enjoined their peers to do the “right thing”. (See Mike Brewster’s “Unaccountable”).

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