Lately, it seems the Public Company Accounting Oversight Board has been in the news more than the perpetually-in-limbo Affleck-Lopez wedding, or a certain muscular Austrian who is relocating to Sacramento with a new job.
The only thing missing is a four-color tabloid photo of PCAOB chair William McDonough on the cover of the Enquirer, or at the very least getting some space in Liz Smith’s syndicated column.
And if recent history is any barometer, either of those gossipy vehicles would probably be granted easier interview access to the chairman and members of the board than many of the long-time accounting trades.
But I digress.
Now that the board is embarking on the business of patrolling the accounting profession, the entity last week unveiled a series of new rules regarding inspections and investigations of firms to ostensibly, stem the wave of audit implosions that have pummeled the profession over the past several years.
In addition to mandating annual inspections of firms with over 100 publicly held audit clients and triennial visits from the board for firms with under that number, the five-member board also voted to propose a pair of additional rules: one designed to define the terms used in auditing and related professional practice standards, and another ‘establishing an auditing practice standard for the attestation to management’s assessment of internal control over financial reporting.”
As the great Paul Harvey says, “Now for the rest of the story.”
Basically it’s proposing that the auditor evaluate a client’s internal controls.
So let me get this straight. The auditor will charged with critiquing the effectiveness of its client’s audit committee?
If I’m an auditor that was hired by deep-pocketed clients like GE or GM, just how critical would my report be on their internal controls — whether they were lacking or not?
A release from the PCAOB stated something to the effect that an ineffective audit committee can, well, basically screw up internal controls and financial reporting.
And while no rational person over the age of 12 would dispute that, you have to ask yourself whether the auditor should be the one dispensing the audit committee’s report card.
You want an honest opinion on effective internal controls? Why don’t you poll several thousand Enron and WorldCom shareholders and cover your ears.
It won’t get any more honest than that.
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