The PCAOB has had a pretty good run of late. It all started with the SCOTUS handing them a loss that was really a win and the Board has, most recently, gotten ambitious with new risk assessment standards. What’s more is the call of acting Chair Dan Goelzer to have the Board’s enforcement inspections held publicly so audit firms can’t get all mysterio about what they did and did not do to warrant said inspection.
Well, the run of luck appears to have come to an end as the SEC issued a new rule that takes effect next month that marginalizes the Board to the benefit of the accounting firms it oversees (our emphasis).
Going into effect September 7, the rule explains how accounting firms can dispute the PCAOB’s findings during its inspection process. The firms have always had this ability under the Sarbanes-Oxley Act, but the SEC lacked a formal appeals process. (Indeed, the June 28 Supreme Court decision, which affirmed the constitutionality of the PCAOB, arose out of a small accounting firm’s dissatisfaction with its 2004 inspection report.)
A key feature of the process is secrecy. If an accounting firm appeals to the SEC, the PCAOB will be prohibited from making disputed portions of its inspection report public until the commission completes its review, which could take anywhere from 30 days to over 100 days. Moreover, the SEC could decide to keep the information permanently private if its reviewers determine that the PCAOB’s findings were “arbitrary and capricious.”
Meanwhile, the public will learn nothing about the appeals process or the issues under contention, which will further cloud the results of PCAOB inspections for the accounting firms’ corporate clients who read them. “Until now, the SEC has not restricted the transparency of inspection reports pending the opportunity to seek review,” a PCAOB spokesman tells CFO.
So let’s get this straight – if an accounting firm takes issue with anything in the PCAOB’s report, the firm can then run crying to the SEC – which makes that portion of the report secret – and then the report will sit dormant until that portion reads to their liking which can take 30 to 100 days? OH! And on top of that, if the SEC finds something to be ‘arbitrary and capricious’ that issue will never see the light of day?
It’s not like these inspection reports are being issued at a rapid clip (PwC’s and KPMG’s reports for ’09 are still MIA) or filled with details that are actually meaningful to regular folks (e.g. the clients inspected) and now the SEC is going to let the firms write their own inspection reports.
So much for that small matter of “Oversight.” At least the SEC is being (somewhat) transparent about a power grab.
If we still care about financial reform, we should especially care about proposed changes to the Government Accounting Standards Board because, let’s face it, government accounting could really use a helping hand. Were government pensions forced to use the same reporting rules as every other pension, a $3 trillion hole would open up and we would see immediately that rules in desperate need of repair have remained broken because the current system allows the truth to be buried in the footnotes.
As is, GASB is funded by voluntary contributions given by state and local governments out of the goodness of their hearts (yeah right) and through sales of its publications.
The concern is that should GASB be unable to pay the bills, the federal government may be forced to swoop in and babysit. The potential for conflicts of interest should not escape dear reader as this would be akin to investors owning the SEC or Fed-regulated banks owning the Federal Reserve (oh wait, they already do). Is that any worse than what we’ve got now?
How bad is their financial situation? GASB reported a $3.83 million budget shortfall in 2009 and projected a $4.46 million shortfall for 2010.
So why, if we’re still talking about financial reform, are we not talking about its potential impact on GASB?
Under new financial reform rules, the GAO would be forced to evaluate GASB’s role (read: usefulness) in standards setting within 180 days of the proposal’s passage. How likely would it be for the GAO to call an issuer-funded agency that’s allowed government pensions to conceal $3 trillion in liabilities a blaring and obvious failure? The SEC could then direct FINRA to collect assessments from dealers that would go towards funding GASB. Obviously this piece of legislation has been written by Congressmen who don’t know how to do anything without making it as complicated as possible.
Financial reform has already cleared the House while the Senate is expected to vote within the next two weeks after returning from recess.
Jonathan Weil over at Bloomberg has a new column up today and he is less enthusiastic about the Supreme Court decision in FEF v. PCAOB than say, everyone else.
JW is mostly wondering why we should keep having an “independent” PCAOB inside the SEC since the board members will now be at the mercy of the towing the political line inside the Commission, “While the court
Editor’s Note: Want more JDA? You can see all of her posts for GC here, her blog here and stalk her on Twitter.
For months there has been the underlying hum of a newspaper bailout in the air – not much surprise there given dropping subscriber numbers and dwindling ad revenues. But in lieu of an actual bailout (i.e. a check from the Treasury), how about some tax breaks and anti-trust waivers?
At a workshop on the the [sic] future of journalism yesterday, the head of the Federal Trade Commission said the agency is studying ways to help struggling media companies struggle a little less. What might this help look like? It could come in the form of new anti-trust laws, tax breaks, government subsides [sic] or even changes to copyright law.
Well if “journalism” involves rampant copy errors like that, we’re more screwed than it appears.
Tax breaks for mainstream media? Why? I’m a fringe journalist and I still have to pay my taxes, if I don’t bother to tailor my content to my audience to the point that it draws enough ad revenue to pay my bills, maybe I don’t deserve to eat that week.
It gets better.
Rupert Murdoch has long fought Internet news aggregation and would love to see a pay-per-view program for news that — holy shit! — might actually save news. Where do you get yours from? Would you pay for it?
In recent comments, he basically called every blogger who has ever clipped a news article a thief, including Arianna Huffington. You may have heard of her.
Fine, charge for it. I’d pay if it was worth paying for. Would you pay for the recent CNN article that said the Big 87654 ended with more employees than they started with? Me neither.
Point being, Murdoch would rather see news sites charging than peddling for a bailout. I don’t seem to recall major media outlets begging for any bailouts recently, which naturally inspires a healthy skepticism towards the FTC’s comments.
Has the FTC checked this proposed mainstream media bailout “tax break” with the Treasury? Because if I heard correctly, we have $30 billion to put towards Afghanistan now, not to mention the fact that the FDIC is broke and Citigroup is probably going to need a Dubai backstop. I’m not sure if Timmy would be okay with this, better ask him first.
Editor’s Note: Want more JDA? You can see all of her posts for GC here, her blog here and stalk her on Twitter.
Our dear President has created a “Task Force” to handle those tricky problems like baby Madoffs so we can sleep at night knowing we are safe from the financial crooks robbing us blind.
Or can we?
Top Obama administration officials on Tuesday announced a new federal task force to combat financial fraud after deciding that the number and complexity of investigations linked to the economic crisis require a more coordinated response from government agencies.
Created by executive order, the Financial Fraud Enforcement Task Force targets fraud related to mortgage lending and modification, securities law, stimulus spending and the government’s bailout of the financial sector.
Meanwhile, in absolutely related news, ABC News discovered this week that Recovery.gov shows stimulus funds saving or creating jobs in Congressional districts that don’t even exist. There are tons of them so no one tell me that it’s a rounding error.
Oh wait, they admitted they screwed up and are now fixing it.
Back to this “task force.” Maybe I’m confused but don’t we already have something like that and it failed to get the first Madoff?
The Department of Justice-led task force will include officials from the SEC, Treasury, and Department of Housing and Urban Development. Sounds like a winning crew.
Attorney General Eric Holder insists that one of the task force’s main targets will be “Recovery Act and rescue fraud,” insisting “we will ensure that the taxpayers’ investment in America’s economic recovery is not siphoned away by a dishonest few.”
A dishonest few?
Like the 95 completely made up people on the Recovery.gov website who worked on that sewer project in Wisconsin?
Or the Georgia Head Start administrator who was advised to claim “317” jobs where his organization had really only gotten raises for its 317 employees?
The AP has been watching the stimulus numbers closely, and they continue to check out wrong. It doesn’t take an accountant, nor a task force, to figure that out.
When tasked with protecting investors by going after the likes of Mark Cuban, the key players must be selected very carefully. Accordingly, the SEC continues to make key appointments in due course. The newest guardian of the investing public is Paul Beswick. He will serve as the head of the Accounting Group in the Office of the Chief Accountant (“OCA”).
For those of you not intimately familiar with the SEC’s enigmatic web, the Accounting Group is the portion of the OCA that likes to stick its beak into the biznass that matters most to accountants and auditors:
The Accounting group works closely with private-sector accounting bodies such as the Financial Accounting Standards Board. Registrants, auditors, and other divisions and offices within the SEC regularly consult with the group regarding the application of accounting standards and financial disclosure requirements.
Mr. Beswick will continue to support the Office of the Chief Accountant’s work related to oversight of the Public Company Accounting Oversight Board (PCAOB) until a replacement is named for his prior position.
Administrative matters simply do not appear to be at the top of the Commission’s to-do list. Understandably, there have been far more pressing matters, such as training employees, developing SIMS for personal finance education (with Bust Out while you wait) and appointing 20-something Chief Operating Officers. Your continued patience is appreciated.
Paul Beswick Named SEC Deputy Chief Accountant in Charge of Accounting Group [SEC.gov]
The mother of all auditors, the Government Accountability Office, had heard some complaints that maybe the IRS wasn’t doing such a bang-up job on the whole Phase two.
After snooping around, the GAO issued a new report that explained that the IRS needs to work on explaining just what it is they do an why they do it.
The IRS has no documented objectives for the notice phase and no performance measures to indicate how well the phase is performing in resolving debt cases or achieving other desired results…
…However, in almost all cases, for the five business rules the IRS identified as affecting the most taxpayers, the IRS did not have information on the date the rules were established, the rationale for the rule, or data supporting the rationale…
…IRS collection officials also lacked documentation describing the business rules and how they operate. Further, even though IRS officials estimated that the business rules had been established for years, IRS had documentation for an evaluation of only one of the five business rules.
• “…no documented objectives…”
• “…did not have information on the date the rules were established, the rationale for the rule, or data supporting the rationale…”
• “…lacked documentation describing the business rules and how they operate.”
• “…documentation for an evaluation of only one of the five business rules.”
Apparently this is one of those cases where the Service says, “Trust us, we have a plan. But don’t ask us to explain it, we wouldn’t want to bore you. Oh, and don’t ask us how well it’s working. We don’t get too hung up on statistics or success rate.”
We’re just talking about tax dollars after all.
IRS Has Trouble Tracking Debt Collection Notices [Web CPA]
The latest Ponzi scheme busted by the new and improved SEC just reminds us that the Commission is rarely chasing after criminal masterminds and thus, has a long way to go before we’re going to be impressed with their efforts:
Continued, after the jump
The SEC alleges that Philip G. Barry and his firms Leverage Group, Leverage Option Management Co., Inc, and North American Financial Services defrauded investors, including senior citizens and retirees, by selling securities in Leverage investment funds….According to the Commission’s complaint, Barry spent the money by purchasing real estate in his own name and those of other entities he controlled, paying expenses of a separate mail order business that sold pornographic materials, and supporting his lifestyle.
Mail order porn? What century is this guy living in? Did he also churn his own butter and crank start his car? We understand that certain forms of entertainment are best appreciated when tangible and we do like getting pleasant surprises in the mail but porn in the mail?
This guy started ripping off senior citizens in 1999. Since porn was on the web pretty much from the get-go we’re pretty sure that the mail order stuff was at falling out of favor by this time. Nevertheless, it appears that no one at the Commission was aware that hot action was available on the web for the past ten years and more advanced training may be needed.
SEC Charges New York-Based Money Manager in $40 Million Ponzi Scheme [SEC.gov]
The SEC has been setting a bad example for everyone. Now the Commission’s sloth-like urgency to appoint a chief accountant seems to have led the PCAOB to think that finding new board members really isn’t a big deal.
Chuck Niemeier announced that he will be leaving his position as a board member of the P very soon, even though his term ended almost a year ago. The PCAOB’s board members are allowed to stay on the board after their terms have ended until a replacement is found.
We suppose that you could give the P credit for having the foresight to write this rule in, as it’s pretty obv that no one really wants this job. Doesn’t make much difference anyway, as it’s not really clear just what the hell they’re doing over there, except making auditors’ lives more difficult and possibly ignoring independence violations.
IFRS Critic to Leave Accounting Firm Regulator [CFO]
In the biggest shocker of the day, the inspector general of the SEC reports that the Commission never undertook a ‘thorough and competent’ investigation into Bernie Madoff’s operations.
This seems to be the official “our bad” statement by the SEC, although Chris Cox didn’t waste any time throwing worker bees under the bus, “Days after the conman’s arrest, the SEC’s then-chairman, Christopher Cox, faulted the agency’s staff for failing to act on ‘credible and specific allegations’ about the operation for at least a decade.”
More, after the jump
Harry Markopolos was soiling himself the whole time and no one bothered to listen probably because you called country club rules when you took the big chair, C-squared. Call us Monday morning QB but if some guy called us up with dirty undies screaming about the biggest fraud in history, we’re pretty sure we’d take him seriously.
Anyhoo, it’s all water near a bridge now. Schape and Co. are kicking ass and taking their sweet time naming key positions, so we’re sure that everything will be hunky-dory from here on out.
SEC Never Took ‘Competent’ Look at Madoff’s Firm, Report Finds [Bloomberg]
UPDATE: Check out more of the SEC sucking over at our sister site, Dealbreaker.
Now that the SEC has got this Ponzi thing under control, it can focus on more important matters like getting famous people off companies’ board of directors because, you know, they don’t really know shit about the companies they serve.
Perfect example: Tommy Franks, former commander of forces in Iraq, who resigned his seat on Bank of America’s board last week, was on the audit committee. The AUDIT COMMITTEE.
That’s actually not even the best example. According to Bloomberg, everyone’s favorite acquitted killer, O.J. Simpson was on the audit committee of Infinity Broadcasting Corporation before he was charged with murder in 1994. O.J. Simpson. Audit committee. Yes.
We could go on to tell you about Lance Armstrong missing 11 board meetings but still getting paid over $70,000 by Morgans Hotel Group or Gerald Ford sitting on the Board of Traveler’s Insurance (owned by Citi) until he was 85 years old but you get the picture.
This is your SEC, citizens of America, getting their shit together since 1934.
Armstrong, ‘Celebrity’ Directors Targeted in SEC Rule [Bloomberg]