On an unusually hot April day in 2003, I happened to be loading my car's trunk after nearly maxing out my credit card after completing a "honey do this" spree at Bed Bath & Beyond, when I heard on the radio that the fledgling Public Company Accounting Oversight Board had selected William McDonough, a high-level banking regulator, as chairman of the auditing overseer.Admittedly, I was unfamiliar with him, because in traditional public accounting circles, McDonough's was not a household name. But after the disaster with inaugural PCAOB chair William Webster, who resigned just weeks after being appointed over his role as a member of the audit committee of a wobbly online company, McDonough's pedigree and reputation for integrity appeared more than strong enough to help stabilize an organization that had had trouble getting traction of any kind.
McDonough assumed the imposing task of policing the auditing profession at a time when Enron and WorldCom were still commanding daily headlines, and former Big Five firm Arthur Andersen was collapsing.
Now, more than two years later, McDonough has announced that he will step down, creating yet another major vacancy among regulators. Two weeks prior, Securities and Exchange Commission chief accountant Donald Nicolaisen revealed that he was leaving for a post in the private sector. Those are two rather imposing executive searches that SEC Chairman Christopher Cox must undertake as he himself is just getting settled into the job.
During his tenure, McDonough spearheaded the registration process for audit firms with publicly traded clients, and the first-ever inspections of audits conducted by Big Four firms. He also encouraged auditors to apply common sense and judgment, something that was not always in large supply. And from one office in Washington - ironically, in the space occupied by Andersen's former D.C. franchise - the PCAOB has grown to eight regional units.
Under McDonough, the board also attacked the tax shelter controversy, voting to curtail the types of tax services firms may provide to audit clients, a measure that became amplified when KPMG scribbled out a $456 million payment for its part in pushing controversial tax shelters.
In contrast to McDonough, Nicolaisen, who joined the SEC just months after McDonough was appointed, came through the ranks of public accounting. As chief accountant, he worked with the PCAOB on SOX implementation, and also with the Financial Accounting Standards Board and international boards on convergence of accounting standards. Nicolaisen also helped implement a pilot program allowing companies to submit data voluntarily using Extensible Business Reporting Language, and more recently, his to-do list dealt with such issues as stock option expensing and the use of off-balance sheet arrangements.
While the debate still rages over how far back the profession has rebounded since the nadir of Enron and WorldCom, few would argue that it's imperative to keep the momentum gained since then.
How Chairman Cox fills these two key posts will serve as a fairly accurate barometer of just how far or how little it will progress from here.
