PCAOB’s Standing Advisory Group – Very, Very Interesting

I’m getting back into a routine this morning after two days of intellectual stimulation in DC and NY. Until I have a chance to write up my review of the meeting in DC on Wednesday, look here for Edith Orenstein’s take on the players and their comments, in particular with regard to the topic of supervision of audits. I’ll have a lot to say on that one!

Suffice to say, it’s a good thing Lynn Turner is still kicking ass and taking names. Most of the rest of the group are limp noodles intent on spinning the story and sustaining the status quo…

Also, big shout out to Mark Olson who said hi to me and stopped by for a few words. He recognized me from all the way back to the Compliance Week meeting last June where he told me he’s a frequent reader of the blog.

Thanks, Mark, for being a such a gracious host.

2 replies
  1. Anonymous
    Anonymous says:

    No comments at all about the PCAOB or the SEC? If I were not so lazy, I would start a blog, and call it “re: The Regulators.”

    However, a few points need to be made so I can at least feel better:

    In a word, they each speak of principle based rules, yet they seem to forget that when doing the 20/20 hindsight reviews. In other words, I will believe principle based accounting only when the regulators get on board with principle based reviews and enforcement.

    With respect to the PCAOB, over the last several years it is amazing to hear how they speak about external audit scope to various groups (especially the CCR of the FEI concerning SOX) and then during the course of the inspections, they blast the audit firms for not doing enough, or not having enough documentation. The mantra of the PCAOB is usually – “if you don’t have it in the workpapers, then you didn’t do the work.” That makes sense to them, I guess. While the PCAOB claims that AS5 should risk-based and top-down, lets see what the results of the 2008 inspections will bring.

    One problem with the SEC is that they seem unwilling to write coherent rules (e.g., the ill-fated proxy rules for compensation disclosure that nobody could understand that resulted in the SEC sending out 300 comment letters…) and the SEC also render rules through “speeches”. Frankly, the SEC people should stop making such speeches and should instead issue only official publications through a centralized office.

    While I could rant all day, one final problem with the SEC/PCAOB is that they tend not to provide companies direct guidance on important issues. For example, if fraud processes are so important, then why is there no guidance/requirements for companies on how to implement, other than the vague references to FCPA etc. Auditors have to comply with SAS99, but there is no definitive guidance for public companies. Why not?

    Also, the SEC recently had a great opportunity to direct companies on what appropriate processes, documentation, and disclosure would be appropriate for fair value for illiquid investments well before the 2007 Form 10-Ks were due. But instead, the PCAOB called (maybe someone else called the meeting, I don’t really know) for a meeting in late Feb 2008 where they drilled the auditing firms about what the auditors “were doing about it”. In other words, the marching orders were to go back to your clients and see if they did a bunch of stuff to rationalize/understand the assumed fair values. The reality is that most companies get a broker quote, often times it is based on a valuation model, and the companies have no real deep understanding about the details of the model. They just know that the model comes from a third party (hopefully well known) and that should be “good enough”. Anyhow, what should have happened is the PCAOB/SEC should have issued specific guidance to impacted companies. But then again, it is always easier to go through the auditors (easier perhaps in the sort-term but not very effective).

    Do I hear a train wreck coming on fair value? You betcha. Even the Fed Chairman called this out last week during his testimony to Congress, and he stated he didn’t have any good answers about the fair value conundrum.

    Final Four Guy

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