On occasion, even the fiercest critics of the American Institute of CPAs have to give it credit - begrudgingly or otherwise. Even for a simple thing like refusing to take no for an answer.
No, I’m not talking about bestowing kudos over a certain Web portal, or a nebulous global business designation that was soundly trounced by a membership vote, or a pair of once highly touted, but now largely overlooked, online security programs.
No, I’m talking about something more basic to the profession - standard-setting.
Since the passage of the Sarbanes-Oxley Act last summer, many began counting the days until the institute was stripped of all standard-setting authority and sent on its way to become, well, a professional membership organization, with a severely diminished role - albeit one with well-furnished offices in midtown Manhattan.
Once the Public Company Accounting Oversight Board came to fruition (after its less-than-stellar beginning), it bluntly informed the institute and its Auditing Standards Board that it would now develop auditing and other standards for those firms with public company clients.
And to leave little doubt about which road it planned to take with regard to stringent reform, the board then appointed Dr. Douglas Carmichael as its inaugural chief auditor. Carmichael is a no-nonsense educator and, in no uncertain terms, a frequent and outspoken critic of both the institute’s and the Big Four’s past performance in the self-regulatory and standards arena.
Over the past 18 months, the institute was largely seen and excoriated as a lobbying concern complete with pom-poms and a mantra of “a century of self-regulation,” rather than as a much-needed reformer.
But, as Paul Harvey says, here’s “the rest of the story.”
At the spring meeting of Council, institute chair Bill Ezzell told attendees that the news of their standard-setting death had been greatly exaggerated. In fact, he urged Council members to step forward (and presumably up as well) and set auditing standards for private companies, in addition to standards for quality control and peer review.
Obviously, public and private companies are different animals, and the ratio of firms performing SEC work to those serving private companies is wildly skewed. Of the 45,000 or so firms that currently are members of the institute, roughly 800 - or 1.5 percent - audit SEC registrants.
And with the rigid guidelines set forth in Sarbanes-Oxley, that number will undoubtedly ratchet down. The profession has already seen ample evidence of smaller firms that already have, or certainly will in the near term, give serious consideration to dumping their public clients after mulling the cost-effectiveness ratio of maintaining an SEC practice in the current environment.
In addition, under Sarbanes-Oxley, the PCAOB would now be funded by firms with SEC clients, so, given that scenario, could it be a standard-setting voice for non-issuers?
Ezzell went even further. He dramatically declared that any thought that audit standards for privately held companies would be overseen by the PCAOB was D.O.A.
That may be a bit premature. But, if nothing else, it shows that the institute is at least trying to remain relevant. We’ll see.
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