God bless the PCAOB. Back in 2004, they created the Office of Internal Oversight and Performance Assurance (IOPA) just in case those smartass Peekaboo inspectors were getting a little too self-righteous all over your audit.
Apparently, the fact that the PCAOB has its own internal oversight board is supposed to make all of you auditors comfortable. That assumes you knew about it in the first place. We sure didn’t know this internal affairs-esque board-within-a-board existed.
Maybe realizing that the IOPA had virtually no identity among anyone, anywhere, the PCAOB did everyone the courtesy of updating its “About” section of its website today reminding us of the internal watchdog. So whether you’ve got a legitimate complaint or you’re just seeking sweet, sweet revenge on that know-it-all dick questioning your tickmarks and indexing method, now you can give the PCAOB a taste of their own medicine.
Internal Oversight [PCAOBUS.org]
In a move that probably just adds one more annoying hoop to jump through for auditors, audit engagements will now go through quality review with adoption of AS No. 7, Engagement Quality Review (EQR).
According to the press release, “The EQR standard provides a framework for the engagement quality reviewer to objectively evaluate the significant judgments made and related conclusions reached by the engagement team in forming an overall conclusion about the engagement.”
We’re hoping the engagement quality reviewers will be given free range to document their “overall conclusions” as they wish. Some that we would suggest: “You call yourselves auditors?“, “I’m recommending that the PCAOB inspect this engagement” or “What in God’s holy name are you blathering about?“. It would be a shame for the firms to institute a check-the-box method that would compromise artistic integrity.
In other PCAOB news, the Board is asking for comments on its Concept Release “to consider the effects of a potential requirement for the engagement partner to sign the audit report.” We speculated last week that signatures in blood or dog excrement might be appropriate in many cases but if you’ve got other ideas, you’ve got 45 days to give them better suggestions.
Press Release [PCAOBUS.org]
The PCAOB has announced Daniel Goelzer will be acting Chairman of the Board effective August 1. Goelzer brings an impressive resume with him, not to mention a sheriff-like mustache that will undoubtedly let the accounting firms know that he is not to be trifled with.
The details are still being worked out but another idea being floated around is giving partners the option of signing some opinions in dog feces, when the opinion being signed is in fact, of equivalent value.
Press Release [PCAOB.org]
The SEC gave Congress a little tease about what happened at the Commission re: totally missing the boat on this Madoff thing. But then again, not really.
Inspector General David Kotz made recommendations about ways that the Commission could improve its oversight over the financial industry because, obv, it had nothing to do with the fact that no one there had the background to detect classic Ponzi schemes.
Some recommendations that Kotz made included giving the PCAOB more oversight including jurisdiction over accounting firms that audit investment advisors and broker-dealers. That’s just what the PCAOB needs, more on its docket because it gets things done so quickly.
Kotz would also like to see an amendment to the Securities Act of 1940 that would require investment managers, including hedge funds, to place their securities with custodians that are registered with a national exchange. Kotz claims that this would prevent investment advisers from fraudulently using the proceeds received from new investors to pay old investors (a la Ponzi).
That’s all fine and dandy but Rep. Paul Kanjorski, of Pennsylvania has been asking for details on the Madoff ball dropping for the last two weeks and the Commission has been stalling. Kotz could only state that the Commission is “proceeding ‘in an expeditious manner.'”
Translation: We don’t have any idea how we missed the biggest Ponzi scheme in history.
Best we can expect, Kotz says, is that the report to be issued by the end of August. Which might be enough time to get Kanjorski involved in a sex scandal and maybe this will all just go away for the Commission.
S.E.C. Previews Its Madoff Report [DealBook/NYT]
PCAOB, we here at Going Concern want to help you get some respect. We really do.
We don’t think it’s fair that people think you’re slow at writing rules for auditors. Okay, maybe you could pick up the pace a little bit but we know that it takes a lot of work and patience to write those rules. But then we heard about this and we want to let you know that we aren’t angry, you’re just letting us down.
The U.S. audit watchdog voted on Thursday to defer its first inspection on 49 foreign auditors in areas such as the European Union, China and Switzerland for up to three years.
Like we said, we’re not mad. We’re disappointed.
US PCAOB delays 1st review of 49 foreign auditors [Reuters]
It’s tough being part of a bureaucracy, especially if you’re doing something as glamarous as babysitting auditors. The CIA, FBI, NSA have got it easy. You get to catch bad guys, use guns, and Hollywood makes movies about you. Aside from the warrantless wiretaps and otherwise general big brotherishness, it’s cool.
The PCAOB doesn’t get that luxury. They get to poke around auditors’ work and then tell them how much they suck at it. Not so fun for anybody. They also get to write auditing standards. Take the watchdog aspect, multiply it times infinity, and that’s about the amount fun we’re talking about for writing rules on auditing.
But now people are saying they’re too slow in writing these I-already-want-to-kill-myself boring rules? Yep:
“Given how little they’ve accomplished in the standards-setting area, they don’t get a passing grade,” says Lynn Turner, a former chief accountant for the SEC.
Turner says he and a group of investor advocates wrote to the PCAOB in 2004, asking it to improve fraud standards. But the work remains undone, he says.
Bill Gradison, the board member whose term expires in October, calls the criticism fair. “We’ve been much slower than other standards writers,” he says.
By comparison, the International Auditing and Assurance Standards Board, which sets international auditing standards, among other duties, finished revising its own standards in March. The process, which included 37 standards, took about five years
Man, now comparisons to the Europeans. They’re looking for some new blood at the PCAOB though, since Mark Olson is retiring as Chairman and another board member’s term is expiring.
But don’t you go calling them lazy! “the PCAOB is taken seriously by the auditing community and deserves credit for trying. ‘Anyone who says it isn’t is off the wall,'”
What a ringing endorsement.
COMPLIANCE WATCH: Oversight Board Sets Sluggish Pace [WSJ]