The House Financial Services Committee Was High on Red Bull When They Voted to Eliminate the PCAOB

Posted on by Going Concern News Desk
closeup of US Capitol on US currency

It is known that the Public Company Accounting Oversight Board has been at risk of getting DOGE’d under the Trump administration, starting with the nomination of known PCAOB-hater Paul Atkins to serve as chair of the SEC. Wrote WSJ in late 2024:

Atkins, while an SEC commissioner, criticized the PCAOB’s budget, saying salaries paid to board members were disproportionately high. In speeches, he spoke out against rules that limited audit firms’ ability to make professional judgments. “Overly prescriptive standards can rob you of the ability to apply your professional judgment,” Atkins said in 2005.

The board members’ annual salaries have been flat since 2009, with the chair receiving nearly $673,000 and the other members receiving almost $547,000.

Atkins as commissioner showed disdain for the PCAOB when meeting with officials from the audit regulator, said Martin Baumann, an adjunct accounting professor at Southern New Hampshire University and former PCAOB chief auditor. “I don’t expect this to be good for the PCAOB,” he said, referring to Trump’s Atkins pick.

Atkins, who served as Commissioner of the SEC from 2002 to 2008 under George W. Bush, was sworn in as SEC Chairman on April 21. “I am honored by the trust and confidence President Trump and the Senate have placed in me to lead the SEC,” he said in a news release “As I return to the SEC, I am pleased to join with my fellow Commissioners and the agency’s dedicated professionals to advance its mission to facilitate capital formation; maintain fair, orderly, and efficient markets; and protect investors. Together we will work to ensure that the U.S. is the best and most secure place in the world to invest and do business.”

Alright, so the SEC Chairman thinks the PCAOB is dumb. Whatever, he’s just one guy. But what’s this?

Oh.

This week, the House Financial Services Committee voted 30 to 22 to roll the PCAOB up into the SEC. This is but a preliminary step and will require more than 30 Financial Services Committee Republicans to come to pass. Regardless, the PCAOB is on notice that their days could be numbered.

PCAOB Chair Erica Williams had this to say at the Baruch College’s 23rd Annual Financial Reporting Conference today:

I am deeply troubled by legislation passed by the House Financial Services Committee that proposes to eliminate the PCAOB as we know it.

The integrity of our markets is not inevitable. It takes vigilance to guard against negligence, recklessness, and fraud that threaten our system and the people who depend on it.

The PCAOB plays a vital role in that effort – a role our talented and dedicated staff have developed over decades, building unique experience and expertise that cannot be simply cut and pasted elsewhere without significant risk to investors at a time when markets are already volatile, and investors have so much to lose.

Reflecting on the scandals that led Congress to create the PCAOB, Senator Paul Sarbanes, who coauthored that law, warned of complacency. “When things get better,” he said, “companies tend to forget what happened or how serious it was at the time. Trying to maintain high standards is a difficult job.”

Over the last 20 years, the PCAOB has proven itself up to the task.

She made similar comments at the Investor Advisory Group Meeting on Tuesday.

Ever since the Project On Government Oversight (POGO) called the PCAOB “feeble” in a scathing 2019 story, the Board has been busy fining firms for sharing answers on internal training, many of these firms being halfway across the world and many of the trainings being open book. The most recent one was PwC Israel, hit with a $2.75 million fine for cheating during the same period in which the firm had no deficiencies in their audit inspection. PwC Israel was the 10th firm to get sanctioned by the PCAOB for answer-sharing since 2021, something the Board was sure to mention in their press release about the action.

KPMG Netherlands holds the distinction of getting the largest PCAOB fine to date — $25 million — for “improper answer sharing” between 2017 and 2022. To be fair to the PCAOB, it wasn’t just sharing answers. KPMG Netherlands lied to their faces about knowing it was happening.

Meanwhile, back here in America, WSJ informs us that energy drinks were present at the committee hearing:

The committee hearing took hours as members reviewed a number of proposals. The team of Chairman French Hill (R., Ark.) provided “reconciliation survival kits” for committee members that included a Red Bull energy drink, a stress ball and espresso candies. One Republican committee member was already drinking his Red Bull before 11 a.m.

Yeah, well, those committee meanings are boring, who can blame them.

AICPA President and CEO Mark Koziel, CPA, CGMA had this to say about the possibility of the PCAOB being absorbed by the SEC:

“The AICPA believes that healthy oversight of accounting firms that audit listed companies strengthens capital markets and protects the public interest. That oversight system involves multiple layers, including timely and transparent audit standard setting and rigorous inspections intended to drive effectiveness and expand knowledge and best practice. It also includes licensing, firm and engagement quality control requirements, and disciplinary activities at the state and federal levels.

“The AICPA continuously engages in activities to support ethical behavior and high-quality performance among CPAs serving the public interest and performing audits. The Auditing Standards Board sets audit standards for U.S. private companies, employee benefit plans, not-for-profit organizations and state and local governments, and attestation standards. Our initiatives include supporting the Center for Audit Quality’s work to promote high-quality audits of listed companies.

“The AICPA is committed to supporting the drivers of audit quality needed to keep the investing public safe and provide confidence in our capital markets. We stand ready to assist policymakers as they consider potential changes to the regulatory infrastructure overseeing public company auditing.”

More specifics here in this Financial Services doc:

House Services PCAOB BILLS-119HConRes14ppDownload

GOP Lawmakers Vote to Eliminate Accounting-Firm Watchdog [WSJ]

Related Posts

Promotion Watch ’10: McGladrey Names 21 to Partner/Managing Director

Cake and punch all around, natch. And if you’re lucky, pictures with your McGladrey-sponsored golfer of choice.

Oct 01, 2010 – MINNEAPOLIS (October 1, 2010) — RSM McGladrey, Inc., and McGladrey & Pullen, LLP, leading providers of assurance, tax and consulting services under the McGladrey brand, recently announced the promotion of 21 employees to partner/managing director roles, effective Oct. 1.

“Our new partners and managing directors have demonstrated the power of truly understanding our clients’ needs and proactively contributing to their success,” said C.E. Andrews, president and COO for RSM McGladrey. “They display the firm’s core values of relationships, excellence and integrity every day in their interactions with clients, potential clients and with one another. It’s a pleasure to recognize their significant contributions.”

“These employees have consistently proven their ability to gain a deep understanding of our clients’ businesses, aspirations and challenges,” said Dave Scudder, managing partner and CEO of McGladrey & Pullen, LLP. “They have used this understanding to develop innovative insights and expertise unique to each client and industry that we serve.”

The complete 2010 class of partners and managing directors includes:
Name Line of Business Location
Donnovan Maginley Assurance Florida
Doug O’Connor Assurance Illinois
Linda Dehner Assurance California
Steve Gradl Assurance Minnesota
Tasha Kostick Assurance California
Wes Getman Assurance Atlanta
Allison Egbert Assurance Boston
Kevin Vannucci Consulting Connecticut
Brian Holmes Consulting Illinois
Lawrence Levine Consulting Illinois
Dean Nelson Consulting Boston
Diego Rosenfeld Consulting Boston
Rob Frattasio Consulting Boston
Greg DeVino Tax Florida
John Majer Tax Florida
Tay Reeder Tax Georgia
Phil Wasserman Tax New York
Brian Blacklaw Tax Illinois
Mindy Cozewith Tax Georgia
Rebecca Sheridan Tax Texas
Jim St. Germain Tax Boston

McGladrey Announces New Partners and Managing Directors [PRLog]

There’s Some Fuss About Groupon’s Revenue…or Profits…or Something

You may have heard that the company that encourages people to go broke by saving money, Groupon, filed a S-1 with the SEC last week to go public. It’s been a matter of hot debate as to whether this company is the real deal or simply another house of coupons. One matter that has several people sc is how the company accounts for its revenue. A reader dropped us this note yesterday:

Caleb

I am not one to bring up accounting questions on your blog as its not your web site’s background [Ed. note: Uh, you mean, accounting?]. I was wondering if you could post one question and make an exception as it relates to Groupon. How on earth did Groupon get away with Gross Revenue treatment and not net revenue? All my accounting friends from the Big 4 and even people who do not work on the Groupon audit at E&Y are stumped. All the literature points to net revenue which means they would not report gross revenue of 900 million but rather 200 million or so which represents their cut. Given how companies are valued on multiple of revenue this seems like a big issue. Any help would be appreciated by your readers.

Now it’s not exactly clear what our reader is referring to (feel free to comment below if you understand) but here’s a clip from the S-1:

Sorry for the squishiness. As you can see, Groupon is reporting revenue for 2010 of over $700 million (not sure about $900 million). They have a cost of revenue (aka cost of goods sold) of over $400 million with a “gross profit” of $279 million. Now, if you’re thinking “gross profit” should be “net revenue” you’re not alone.

From CNBC, there appears to be a debate over semantics:

Groupon accounts for its revenue differently than say eBay, and in a way that some say is misleading to potential investors. The company defines revenue as “the purchase price paid by customers.” Then there’s the issue of “the cost of revenue,” leaving the company with what it calls “gross profit,” which is “the amount of revenue we retain after paying an agreed upon percentage of the purchase price to the featured merchant.”

Here’s the thing: Many companies like eBay […], which also take a fee for transactions, would consider that “gross profit” number a “net revenue number.” UCLA Anderson School’s accounting lecturer Gordon Klein says the S-1 uses terms in a way he’s never used them before, and this unusual accounting tells him that investors should “run from the stock.” Others say this is a non-issue: Wedbush securities analyst Lou Kerner says that the company has done a totally adequate job outlining its accounting approach. Kerner says whether the company reports its revenue before or after direct costs should have zero impact on investors evaluation of the company.

And co-founder Andrew Mason admits that Groupon does things a little differently. Under a section entitled “We don’t measure ourselves in conventional ways” he writes, “we track gross profit [as a metric], which we believe is the best proxy for the value we’re creating.” But that’s all the explanation he gives. Later the filing states, “We believe gross profit is an important indicator for our business because it is a reflection of the value of our service to our merchants.” And under “How we measure our business” things are equally vague:

Gross profit. Our gross profit is the amount that we retain after paying our merchants an agreed upon percentage of the purchase price to the featured merchant. We believe gross profit is an important indicator for our business because it is a reflection of the value of our service to our merchants. Gross profit is influenced by the mix of deals we offer. For example, gross profit can vary depending on the category of product or service offered in a particular deal. Likewise, gross profit can be adversely impacted by offers that we make for the principal purpose of acquiring new subscribers or establishing our brand and building scale in a new market.

Throughout the S-1, the term “gross profit” is used 52 times. If you’re used to reading SEC Filings, the term may throw you off but ultimately the numbers are what theyare and the terms used seem secondary. If you believe “gross profit” is a bullshit metric for this business, fine that’s one thing but if they choose to use slightly unorthodox terminology, does that mean investors should ‘run from the stock’? Personally, I don’t happen to be customer of any of the banks underwriting this thing, so this of little consequence but accountants like to sweat the details, so feel free to make a case either way in the comments.