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November 28, 2022

The PCAOB Sticks Its Finger in the Fair Value Jar

peanut-butter-ss.jpgEditor’s Note: Want more JDA? You can see all of her posts for GC here, her blog here and stalk her on Twitter.
You know that annoying roommate you had in college who always stuck his finger in your peanut butter jar? That’s the PCAOB meddling in fair value and it won’t be pretty.
On October 14 – 15th, the PCAOB’s Standing Advisory Group (SAG) is slated to meet to discuss the particulars of fair value and starts off by admitting that “The Board has no authority to prescribe the form or content of a public company’s financial statements.” OK, so WTF are they doing then?


Via CFO.com:

For the past couple of years, regulators have nudged auditors to get more skeptical when it comes to evaluating fair-value measurements. In the meantime, the controversial accounting rules governing how companies apply fair value have been tweaked and companies’ use of judgment for assigning fair-value price estimates to their financial instruments has grown.
The Public Company Accounting Oversight Board is dipping into contentious waters again by suggesting that new fair-value auditing rules are necessary. The board’s staff has long contended that the use of estimates based on market value — rather than historical cost — adds uncertainty and subjectivity to financial reporting and an added risk of material misstatements. At the same time, the regulator has been slow-footed on previous attempts to change its rules when it comes to auditing fair-value calculations.

So what gives, PCAOB? Don’t you trust that auditors are trained to do their damn jobs?
Apparently not. The PCAOB is concerned that auditors lack the technical skill to evaluate complex financial instruments and frankly I could see why they might be a tad concerned.

Regardless of the applicable accounting requirements, it is a fundamental requirement that the auditor obtain sufficient competent audit evidence to provide reasonable assurance that fair value measurements and disclosures are in conformity with the applicable accounting principles.
The staff believes that a standards-setting project to revise its existing standards on auditing fair value measurements and using the work of a specialist may be appropriate for a number of reasons. Information obtained from the Board’s inspection and enforcement programs indicate that some auditors might not be exercising sufficient professional skepticism when performing audit procedures and evaluating results in higher risk areas of the audit.

Well that’s fabulous. Isn’t it already in an auditor’s job description to approach an audit with professional skepticism and to obtain sufficient audit evidence? So, uh, is the PCAOB implying that auditors have no idea what they are doing? Why doesn’t the PCAOB just do all the audits?
It’s a brave new world, kids, and the PCAOB knows it. Perhaps if regulators had done their job in the first place, auditors wouldn’t be facing increased pressure to somehow decode increasingly complex securitization, off balance sheet entities, and absolutely bizarre financial instruments. But since that’s our reality these days, might as well pop a few Xanax and start ticking and tying your way through those billions in derivatives. Quick, the PCAOB is coming!

peanut-butter-ss.jpgEditor’s Note: Want more JDA? You can see all of her posts for GC here, her blog here and stalk her on Twitter.
You know that annoying roommate you had in college who always stuck his finger in your peanut butter jar? That’s the PCAOB meddling in fair value and it won’t be pretty.
On October 14 – 15th, the PCAOB’s Standing Advisory Group (SAG) is slated to meet to discuss the particulars of fair value and starts off by admitting that “The Board has no authority to prescribe the form or content of a public company’s financial statements.” OK, so WTF are they doing then?


Via CFO.com:

For the past couple of years, regulators have nudged auditors to get more skeptical when it comes to evaluating fair-value measurements. In the meantime, the controversial accounting rules governing how companies apply fair value have been tweaked and companies’ use of judgment for assigning fair-value price estimates to their financial instruments has grown.
The Public Company Accounting Oversight Board is dipping into contentious waters again by suggesting that new fair-value auditing rules are necessary. The board’s staff has long contended that the use of estimates based on market value — rather than historical cost — adds uncertainty and subjectivity to financial reporting and an added risk of material misstatements. At the same time, the regulator has been slow-footed on previous attempts to change its rules when it comes to auditing fair-value calculations.

So what gives, PCAOB? Don’t you trust that auditors are trained to do their damn jobs?
Apparently not. The PCAOB is concerned that auditors lack the technical skill to evaluate complex financial instruments and frankly I could see why they might be a tad concerned.

Regardless of the applicable accounting requirements, it is a fundamental requirement that the auditor obtain sufficient competent audit evidence to provide reasonable assurance that fair value measurements and disclosures are in conformity with the applicable accounting principles.
The staff believes that a standards-setting project to revise its existing standards on auditing fair value measurements and using the work of a specialist may be appropriate for a number of reasons. Information obtained from the Board’s inspection and enforcement programs indicate that some auditors might not be exercising sufficient professional skepticism when performing audit procedures and evaluating results in higher risk areas of the audit.

Well that’s fabulous. Isn’t it already in an auditor’s job description to approach an audit with professional skepticism and to obtain sufficient audit evidence? So, uh, is the PCAOB implying that auditors have no idea what they are doing? Why doesn’t the PCAOB just do all the audits?
It’s a brave new world, kids, and the PCAOB knows it. Perhaps if regulators had done their job in the first place, auditors wouldn’t be facing increased pressure to somehow decode increasingly complex securitization, off balance sheet entities, and absolutely bizarre financial instruments. But since that’s our reality these days, might as well pop a few Xanax and start ticking and tying your way through those billions in derivatives. Quick, the PCAOB is coming!

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Are Today’s Accountants Already Occupying Wall Street?

Caleb and I had a talk last night and it made me think about this whole Occupy Wall Street thing. More importantly, it made me think about what I am and am not doing to support it. I haven’t been to a rally, even to take pictures (last time I tried to do that, I was the only one out in front of the Federal Reserve Board at 6 in the morning except for the lone Fed cop patrolling the perimeter).

I get that people are pissed off. I’m pissed off too. I’ve been pissed off, don’t tell me about being pissed off. I was lugging around aFed sign made on top of “Ron Paul ’08” acrylic three years ago, you don’t have to tell me about being pissed off. (Here I am in 2009 on SF Citizen in a “Bernanke 00%” t-shirt at an anti-Iraq war rally)

And I get that for some people, all there is to do is go downtown with a drum and some poorly-written signs on cardboard ripped from your mom’s Costco packages in the recycle bin. That’s totally fine, everyone has their own way of sticking it to the man.

For a lot of Going Concern readers, sticking it to the man means showing up every day in business casual pretending to give a fuck about COSO but actually knowing that it’s all a lie. They work you to the bone until you leave or submit and get promoted to manager. Partner if you’re lucky. Run on that hamster wheel, here have this bonus, keep going and one day you can beat your own subordinates into submission. Go, go, go… Many of you get that this is bullshit but keep showing up every day anyway, and to me, you are your own special kind of protester. Same as last year, motherfucker, it’s the ultimate form of rebellion.

Too much?


Point being, everyone has their own way of screwing the establishment. Francine does it railing against the Big 4. Bill Sheridan and Tom Hood do it at the MACPA with professionalism. Tom Selling does it by riling up fellow academics. Professor Dave Albrecht does it by being seen in public canoodling with known incendiaries like yours truly.

I do it by ripping on the IASB as often as I am allowed to, infiltrating the Hill to sniff out what’s the latest in CPA lobbying efforts and getting in as many F bombs as I can on the dry subject of accounting. That’s all I can do. I can’t abandon my day job to hang out in Manhattan eating vegan paninis. I can make and distribute offensive Bernanke fridge magnets.

I completely understand why people are attracted to Occupy Wall Street; the part I’m struggling with is why so many of the 99 Percenters seem obsessed with this thing called “fairness” that does not, in fact, exist. Is it fair that any of us have to drag our asses to work every day and do what we do? Is it fair that Becker costs $3,000 and doesn’t pass the CPA exam for you? Is it fair that many of you are drowning in student loan debt and seemingly forced to get Master’s degrees just to work in your field? Is it fair that Caleb gets listed in all the accounting publications and I’m stuck as the sidekick hack who always manages to piss people off? This world is unfair, sorry to be the bearer of bad news. I have to write about accounting every day of my life, it’s un-fucking-fair, we get it.

In my view (for whatever that is worth, which is probably not more than our company pays me to write this post), the ultimate rebellion is assimilating and infiltrating the establishment to enact real change from the inside. Are partners scared as shit of this website? Yes. If they’re threatening you with termination if you even dare to write us for advice, we’re doing something right. And I didn’t even have to not shave my armpits to accomplish that (but Caleb probably shaved his).

Are any of you going to independently revolutionize the accounting industry? Probably not. But collectively, you have scared the pants off of lazy ass recruiters and partners across this country who thought you didn’t have it in you. They read us because they feel like they have to or else they’ll lose touch with what you guys are thinking, and it scares the living shit out of them. In my mind, that’s a far more effective message to send the The Establishment, whoever the hell they are.

I fully support the fundamental sentiment of Occupy Wall Street but much prefer fulfilling my incendiary duties here trying to get accounting kids riled up and questioning why they put up with the shit they do. Working mothers in public accounting should be allowed to have children. Interns should be allowed to ask questions (even dumb ones). Auditors should be expected to question last year’s logic. It’s not complicated but it’s important work that a lot of you do, and I hope that you get that.

It is not your fault that we’re here. Many of you just followed the rules.

Thanks for letting me be a part of that. Beats standing around with a fucking sign, that’s for sure.

Earlier:
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