October 2, 2022

SEC Tired of Telling the PCAOB How to Do Their Job

Colin buried this one in ANR this morning but let's trot it out into the light where it belongs.

Michael Rapoport writes for the Wall Street Journal:

Renewing criticisms from December, SEC officials said the Public Company Accounting Oversight Board should be focusing on enacting rules governing the nitty-gritty of how auditors do their jobs. Some suggested the audit regulator has instead been devoting too much of its attention to efforts to reform the audit industry and require auditors to disclose more to investors.

“I’m a bit concerned the PCAOB’s limited standard-setting resources have been focused too heavily on disclosure projects,” SEC Commissioner Daniel Gallagher said, at an SEC meeting to consider the PCAOB’s proposed 2015 budget. If that emphasis is at the expense of enacting rules focused on the details of how auditors should conduct an audit, he said, “those priorities need to be re-examined.”

The PCAOB should “update the standards that directly affect auditor performance,” SEC Chief Accountant James Schnurr agreed.

So, basically, the SEC is telling the PCAOB to stop monkeying around with disclosures and stick to auditing audits. You know, like, the entire reason the PCAOB exists in the first place.

Former SEC Chief Accountant Lynn Turner — who is a current member of the Investor Advisory Group and past member of the Standing Advisory Group — has been quoted referring to the PCAOB as "just another bureaucratic board." Which, if you're in Washington trying to get things done, is some serious shade to have thrown at you.

The PCAOB’s Mr. Doty contends the new disclosures will improve audit quality and make audit firms more accountable. But some of those efforts have faced opposition from the accounting industry and are being modified, delayed or both. A PCAOB effort to explore whether companies should have to periodically change their auditors faced such fierce opposition from the industry and some in Congress that the PCAOB shelved it.

Wait a minute, does the PCAOB work for the profession or does it work for the public interest? Well, that doesn't matter so long as the SEC is the one in charge of the PCAOB's allowance. Which, by the way, is down 3% this year to $250.9 million.

In a 2003 speech — just after the PCAOB marked its first anniversary — then board member Dan Goelzer laid out the PCAOB's true mission:

At the most basic level, the Board's mission is not to register and inspect accounting firms, to set auditing standards, or to run a disciplinary program for accountants who fail to live up to their professional obligations — although we will be doing all of those things. Rather, our basic job is to instill confidence in auditing and public company financial reporting.

The PCAOB's mission at present is as follows:

The PCAOB mission is to oversee the audits of public companies in order to protect the interests of investors and further the public interest in the preparation of informative, accurate and independent audit reports. The PCAOB also oversees the audits of broker-dealers, including compliance reports filed pursuant to federal securities laws, to promote investor protection.

Looking at the current standard setting agenda, none of these things are really that off the wall or contrary to that core mission. One could argue that audit partner naming doesn't necessarily instill confidence in audits but it does make audit partners more accountable, which in turn may just compel them to do better work. Why would the SEC be against that?




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