#TBT: Former SEC Chairman Christopher Cox on The SEC’s IFRS Roadmap
The great thing about speeches these days is that they generally live in perpetuity on the Internet, even if the speech-makers would hope that we have forgotten them. Oh, you wish. Today's Throwback Thursday comes from deep in former SEC Chairman Christopher Cox's closet. Made in March of 2007, over a year before the SEC […]
Mark Weinberger Is Still Obsessed With His Speech No One Remembered
When you die, no one is going to come to your funeral and declare "wow, that guy could tie out like no one's business!" But your kids will certainly remember whether or not you showed up to 12 of their 55 soccer games. EY Global Chairman and CEO Mark Weinberger is all about the work-life. […]
IASB Vice Chairman Suggests Adopting IFRS Is the Only Solution to Convergence Failure
You know, I have to give it to these guys, they are nothing if not persistent. They are like that lady who is always calling me to talk about my credit card interest rates; no matter how many times I cuss her out, hang up on her, threaten to report her to the pretend federal […]
Former SEC Chair Chris Cox Goes From Cheerleading IFRS Adoption to Burying It
Before we talk about Chris Cox's recent comments on adoption of international standards in the U.S., allow us to look back. After all, you will recall Cox was the one pushing for them years ago when he was still chairman of the SEC. Let's see what he said at an SEC Open Meeting in August […]
Auditors Will Be Happy to Know That Term Limits Are Still on the Table
In a keynote speech at the AICPA's National Conference on SEC and PCAOB developments, Chairman Jim Doty passed on the opportunity to mention extremely recent developments and instead focused on things like the importance of independent auditing to "our economic success" and audit firm culture and the PCAOB's current initiatives. In fact, Mr. Doty doesn't mention […]
PCAOB Discovers That Some Firms Consider Audit Quality to Be a Nice Idea That Doesn’t Work in Real Life
PCAOB Board Member Jeanette Franzel, CPA, CIA, CMA, CGFM, gave a speech at University of Tennessee Corporate Governance Center today that discusses "Current Trends and Issues in Public Company Auditing." That's nice and all but the first half of the transcript is more or less a history of auditing and the PCAOB. The second half finally gets […]
Jon Huntsman Has a Plan for Tax Reform
Unheard-of GOP Presidential candidate Jon Huntsman isn’t doing so well in the race for his party’s nomination. This is probably due to the fact that he seems like a fairly pragmatic fellow and pragmatism isn’t really something that fits in the GOP agenda. I mean, COME ON, the man believes in evolution and trusts scientists on climate change. Clearly he’s going nowhere with those kinds of policy positions.
So, in what will likely amount to another failed attempt to bring some sense to the GOP narrative, Huntsman will give a speech on tax reform and various other issues in New Hampshire.
Huntsman will lay out his plans for tax and regulatory reform, energy independence and free trade in a New Hampshire speech that’s being billed as perhaps the last best chance for Huntsman, who stands far behind the GOP frontrunners in polls, to establish himself as a serious contender for the Republican presidential nomination. “Meeting our challenges will require serious solutions, but above all, it will require serious leadership – a quality in high demand in our nation’s capital, and among my opponents on the campaign trail,” Huntsman will say, according to excerpts released by his campaign. The centerpiece of the plan is a proposal to reform tax rates. The Huntsman plan would eliminate all loopholes, deductions and tax exemptions in exchange for establishing three individual income brackets, taxed at eight, 14 and 23 percent. The Huntsman plan would also eliminate capital gains and dividend taxes, do away with the Alternative Minimum Tax (AMT) and reduce the corporate tax rate to 25 percent.
Now all he has to do is mention God’s role in all of this and he’ll be the frontrunner.
Huntsman to unveil sweeping tax reform [The Hill]
PCAOB Chairman James Doty Is Concerned That Some Auditors Either Don’t Care or Are Completely Ignorant About the Notion of Independence
As you may have heard, PCAOB Chairman Jim Doty gave a speech at the University of Southern California yesterday where he discussed among other things, the possibility of mandatory auditor rotation and changing the standard auditor’s report. The prospect of these two changes aren’t exactly something auditors are stoked about but some people are of the opinion that a) auditors like to get a little too chummy with their clients which leads to b) not taking the “independence” thing too seriously and c) the auditor’s report, in its current form, its pretty much worthless.
You can read Doty’s entire speech over at the PCAOB website where touches on all of these but here’s one example around independence that probably qualifies for, in Doty’s words, “[an] approach [to] the audit with an inappropriate mindset”
[An] audit partner’s self-assessment claimed that he “overcame long-standing barriers against non-audit services at [two audit clients] with a series of well-planned meetings and supporting presentations with the Audit Committee Chair, the full Audit Committee, the CEO and the CFO at both companies.”
In response, his reviewing partner noted that he was –
highly alert to cross service line opportunities and has successfully penetrated both of his accounts where few services had been
provided in the past. The results of these efforts were a number of proposals and wins but the efforts will likely impact FY 11 in [a] more significant way.
Anyway, there are other stories of bad auditor behavior, so check the whole speech if you feel so inclined. And while Chairman Doty admitted that “We don’t see these problems in all the files we look at,” it causes he and others to wonder if “these audit partners are unaware of, or simply unconcerned about, the independence rule that should make such considerations irrelevant to their compensation, and why a firm would allow such unawareness or unconcern to continue unabated.”
So flagrantly bending the rules to the point where they might as well be breaking or stupidity? Neither is too flattering.
Paul Ryan Practically Threw a Fit During President Obama’s Speech
Mr. Ryan sat in a front-row seat in the George Washington University auditorium Wednesday while Mr. Obama unveiled his plan to constrain growing levels of federal debt. Mr. Ryan grew visibly annoyed during the speech, shaking his head in disgust. He feverishly took notes, and when Mr. Obama finished he stood up and bolted from the auditorium. The only person apparently running faster towards the exit tugged on Mr. Ryan’s sleeve near the doorway and reached out to shake his hand. “Hi, Mr. Chairman, Gene Sperling,” Mr. Obama’s director of the National Economic Council said to Mr. Ryan in what appeared to be a conciliatory gesture. “Oh, I thought you were a reporter,” Mr. Ryan said, explaining why he didn’t immediately turn around when his name was called. [WSJ]
PCAOB Chairman Doty Shares Some Confusing Statements Made by Auditors
Yesterday, prior to today’s excitement regarding Satyam and PwC, PCAOB Chairman James Doty spoke at the The Council of Institutional Investors 2011 Spring Meeting and he had some interesting things to say about the audit profession, specifically that auditors don’t always remember that “protecting investors” ≠ “client service”:
Time and time again, we’ve seen services that might be valuable to management reduce the auditor’s objectivity, and thus reduce the value of the audit to investors. While management may need the services, they just don’t have to get them from the auditor.
Audit firms call this “client service,” and it makes things terribly confusing. When the hard questions of supporting management’s financial presentation arise, the engagement partner is often enlisted as an advocate to argue management’s case to the technical experts in the national office of the audit firm. The mortgaging of audit objectivity can even begin at the outset of the relationship, with the pitch to get the client.
Consider the way these formulations of the audit engagement that we’ve uncovered through our inspections process might prejudice quality:
• “Simply stated we want management to view us as a trusted partner that can assist with the resolution of issues and structuring of transactions.”
• We will “support the desired outcome where the audit team may be confronted with an issue that merits consultation with our National Office.”
• Our audit decisions are “made by the global engagement partner with no second guessing or National Office reversals.”
Huh. Doty doesn’t name names but you could easily interpret those statements as one made by a client advocate, not a white knight for investors. He continues:
Or, to demonstrate how confusing the value proposition could be even to those auditors who try to articulate it:
• We will provide you “with the best, value-added audit service in the most cost effective and least disruptive manner by eliminating non-value added procedures.”
(What is a “non-value added procedure”? Whose value do you think the claim refers to? If a procedure is valuable to investors but doesn’t add value to management, will it be scrapped?)
In other words, “we promise that we won’t be pests” and “value” will be a game-time decision. And finally:
Or, consider this as a possible audit engagement formula for misunderstanding down the road:
• We will deliver a “reduced footprint in the organization, lessening audit fatigue.”
(What is “audit fatigue”? Does accommodating it add value to investors? How should investors feel about a “reduced footprint”?)
Yes, what is “audit fatigue”? Is that what happens to second and third-year senior associates every February/March? Or is this better articulated by “we know audits are annoying and our hope is that we won’t annoy you too much.”?
Taking this (the whole speech is worth a read) and everything else that happened today into account, it will be interesting to hear what Mr Doty has to say at tomorrow’s hearing.
Looking Ahead: Auditor Oversight [PCAOB]
Also see: Watchdogs caught nuzzling and wagging tails; auditor sales pitches exposed [WaPo]
PCAOB Chair: We’re Kicking Around Some Ideas for a New and Improved Audit Model
Part of perpetually-acting PCAOB chairman Dan Goelzer’s speech at the AICPA’s Conference on SEC and PCAOB Developments had to do with the future and it kinda, sorta sounds like the Board might start asking for more than just the auditor’s opinion of yore. He spoke this afternoon at the conference, saying, “it is clear that there is considerable investor hunger for more insight from the auditor into the audit process and the company’s financial reporting. Further, the 2008 report of the Treasury Advisory Committee on the Auditing Profession recommended that the Board reconsider the audit report.”
What kind of ideas? Glad you asked!
The Board will have to make some difficult choices next year if it decides to change the time-honored pass/fail report. There is no shortage of ideas. During a discussion of the reporting model at our Standing Advisory Group meeting last April, some suggested that the auditor should provide more information about the audit itself and how it was performed. Others want the auditor’s views on the management judgments embodied in the financial statements regarding such things as estimates and the selection of accounting policies. Auditors have proposed that their reports should be clearer about limitations on the ability to detect fraud. Some users have suggested expanding the auditor’s current opinion to include new material; others have suggested that the pass/fail report should be accompanied by a separate auditor’s report akin to the MD&A.
Do investors really want to know how the audit sausage is made? Some auditors have trouble pulling things together so we see little up side there.
If you’ve got your own suggestions on making audits even better, feel free to share them at this time.
Jim Quigley, Still ‘a Proud Aggie,’ Fails to Go Out on a High Note
That’s right, he’s proud. Never mind that the football team just finished their season 4 – 8. Sports aren’t everything.
The Big Q, swindler of unsuspecting journalists, took time away from calling CEOs on private jets to give a speech at Utah State (his alma mater) to faculty and students on ethics.
We won’t give you all the gory details since CNN probably is working on that piece right now. We’d hate to steal their thunder.
We will mention that Quigs is swelling with pride that USU’s Jon M. Huntsman School of Business Scholars agree to “principles” which he quoted in the speech:
“I agree to conduct myself according to the highest ethical standards. I will accept personal responsibility for my conduct and any consequences for mistakes, accidental or intentional. I will be honest, truthful and fair in alof my actions and interactions with others. I will also demonstrate civil, respectful and courteous concern for and behavior toward others at all times both in and outside of the classroom.”
It seems like a fine group of sentences but I implore you: is it an oath/promise laminated on tiny cards? Hardly, dude.
Ethics and integrity aside, Quigs’ remarks seem like the standard boilerplate metaphors and clichés. Hell, he even quotes the Oracle in his conclusion, “Warren Buffett said: ‘It takes 20 years to build a reputation and five minutes to ruin it.’ And, once lost, it can take years to rebuild.”
It works well enough but we would have rather heard Quigs wrap it up with “I’ve never gone to bed with an ugly woman but I’ve sure woke up with a few.” It would’ve brought the house down. High note, Quigs. Always look to go out on that high note.
Jim_Quigley_Utah_State_remarks.pdf
Memo to E&Y’s Steve Howe: Choose Your Ice Breaker Carefully
If you’ve got nothing going on tonight and you’re in the Chapel Hill, NC neck of the woods, Steve Howe, E&Y’s Americas Area Managing Partner will be speaking at UNC tonight starting at 5:30. Don’t worry, it’s scheduled to end at 7:00 sharp so you’ll have plenty of time to get home in time for baseball or whatever else is on TV these days.
We’re mostly curious how Steve-o will break the ice with the audience, considering it’s been an awkward moment for some of his fellow partners in the past. We’re confident he’ll be fine though, especially since he’s not phoning in the speech and leaving a voicemail for everyone.
It’s not clear if there will be a Q&A, so if you have questions that you’d like to ask Steve-o, kindly leave them in the comments and we’ll pass them along.
Dean’s Speaker Series – Steve Howe, Americas Area Managing Partner of Ernst & Young [UNC Kenan-Flagler Business School]