Day 1 – The Rest of The Gang: Scott Taub

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Scott Taub’s presentation yesterday at Compliance Week 2008 on restatements entitled, “The Materiality Question: Misconceptions, Restatements, and the SEC,” ended up focusing on restatements and his long list of why they may or may not be trending upwards for some and not for others and why they may be unnecessary in some cases.  

It was an excellent presentation that sort of dovetailed into Robert Pozen’s lunch keynote that I will discuss next.  However, Scott’s stature as a former Deputy Chief Accountant for the SEC and his Andersen pedigree, (of dubious value in my book…) means he is a hot speaker, inasmuch as people believe he has some inside scoop on how to deal with the SEC.

Under “unnecessary restatements” Scott includes in his presentation the bullets:
Auditor suggests a restatement based on a technical issue or unwritten “rule”
-Make sure issue is fully fleshed out and that principles of the relevant GAAP are understood
-Consider talking to SEC staff

I thought this was very funny.  So I asked him the question, “Are you suggesting that if a company disagrees with the auditor’s suggested restatement, that they go to the SEC and appeal?  Maybe they should educate themselves and/or hire an independent consultant with GAAP expertise who can advise them and help them debate the issue credibly with the auditor.    After all, the auditor holds all the cards, dontcha’ think?”
Scott saw me for the straight man I was and took advantage of the opportunity to plug his firm.  But he also clarified and said that all debate should take place between the auditor and client first. It is strongly suggested that a company do this from a position of strength and credibility based on beefing up their GAAP knowledge from the inside and via independent advisors.  Then, if there is still a question about whether alternative treatments are equally acceptable, the company and auditor can go to the SEC in a non-contentious manner, asking for their advice, not their arbitration.  
I’m still skeptical of the efficacy of the SEC part of this approach, but I agree wholeheartedly that companies need to change the balance of power with their auditors via adding expertise inside and/or through the use of “ringers”.  And, then be willing to take the consequences.

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1 reply
  1. Francine McKenna
    Francine McKenna says:

    This comment has been posted on behalf of Edith Orenstein of FEI.

    Francine,
    Maybe the undertone of Scott Taub’s repartee with you on the question of 3rd party advice was to discourage ‘opinion shopping’ vs. advice? A useful link for your readers may be to SAS 97 (AU 625) which, in June 2002, amended SAS 50 “Reports on the Application of Accounting Principles,” available on AICPA website under Professional Resources, Accounting and Auditing http://www.aicpa.org/download/members/div/auditstd/AU-00625.PDF.

    The amendment was done in light of the request made by SEC’s then-Chief Accountant Bob Herdman to the AICPA Auditing Standards Board to prohibit second opinions on purely ‘hypothetical’ transactions in which the second opinion auditor (the ‘reporting’ auditor) is not privy to specific facts and circumstances nor has chance to sufficiently communicate with the primary auditor.

    Thanks for your continuing coverage of many speakers and conferences, very helpful.

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