Monday, January 4, 2010

PCAOB Apologists

"The legality of a federal board that oversees accounting firms was debated before the Supreme Court on Monday, with conservative justices suggesting that the board enjoys more independence from the president than the Constitution permits. ... During oral arguments, conservative justices including Antonin Scalia noted that the president's control over the accounting board is limited because the board answers to all five independent commissioners of the SEC, not just the chairman. ... Because of its power to initiate investigations into accounting firms, the board can take 'actions that have devastating consequences for the regulated bodies,' said Chief Justice John Roberts. ... Jeffrey Lamke, the attorney representing the [PCAOB] .... said the president has the same control over the board as he does over everything else that falls under the SEC's jurisdiction. 'Which is nothing,' said Justice Scalia. Several former SEC chairman and accounting-industry groups support the current setup of the accounting board", my emphasis, Fawn Johnson and Jess Bravin at the WSJ, 8 December 2009, link:

If the AICPA and Big 87654 support the PCAOB, how much has it improved investor protection since 2003? Remember the AICPA, Big 87654 and SEC all supported CPA "peer review". I await the PCAOB barring a Big 87654 firm from further practice in front of the SEC.

I found a 21 July 1993 piece by Janice Shields, who was then an Associate Professor of Accounting at Bloomburg University titled, "Bad Audits ... Not Deep Pockets" about the Big 6's auditing failures. Nothing has improved since 1993. Here's a link:


Anonymous said...

Auditors that allow "form over substance" nonsense are damaging the society...

Janice Shields' paper lays out in sad detail how auditing firms enabled the S&L crisis... excellent piece of work she's done.

Here is an example from the current recession...

Statement 167 is a revision to FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities, and changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated.

The determination of whether a company is required to consolidate an entity is based on, among other things, an entity`s purpose and design and a company`s ability to direct the activities of the entity that most significantly impact the entity`s economic performance.

SIV or off balance sheet vehicles nearly brought down the global financial system when investors wouldn't roll the ABCP.

And the banks had to consolidate the vehicles.

Willful blindness from auditors.

The Supreme Court will parse through all the legal pieces. But there must be a desire from some quarter to police and enforce high quality standards and audit practice.

The credit rating agencies are taking the brunt of the criticism this crisis. But the accountants and auditors own it as much or more.

Independent Accountant said...

Read my 5 March 2008 post for an example of this nonsense: I do not exonerate the CPAs for their role in our current mess. But I hold the: Fed, Treasury, Congress, Wall Street and phony academics more culpable. There's a lot of responsible parties here.