PCAOB REPORT CRITICIZES DELOITTEWASHINGTON, D.C. - Deloitte & Touche was the first of the Big Four to have its annual inspection posted by the Public Company Accounting Oversight Board. The PCAOB's report was posted to the board's Web site in late November, and cites Deloitte for failing to obtain sufficient evidence to back up decisions in a number of audits of public companies. The firm disagreed with the board's conclusions in nearly two-thirds of the audits cited, offering a rebuttal of many of its criticisms as part of a response letter included with the report.
The latest report cited 17 Deloitte audits as needing improvement. The report examined audits performed by Deloitte in 2005 of companies' 2004 financial results. The board's report issued in 2005, on work done in 2004, cited eight audits for criticism.
In its response letter, Deloitte said that, "Although in certain instances the documentation for the matters cited in the [report] might not have been as extensive as, or organized in a manner that the viewers would have preferred ... we disagree with these comments, which are presented in a manner that could result in a reader of the report reaching inaccurate and inappropriate conclusions."
In addition to its report on Deloitte, the PCAOB also issued reports on Grant Thornton LLP and BDO Seidman LLP - both containing similar criticisms of audit documentation.
This year's reports can be viewed online at www.pcaob.org/inspections/public_reports/index.aspx.
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PAULSON PANEL SUGGESTS KEY TO SECTION 404 RESTS IN 'MATERIALITY'
NEW YORK - The Committee on Capital Markets Regulation, which has the support of Treasury Secretary Henry Paulson, released a report urging legislators to consider overhauling the country's enforcement policies and litigation system.
The report stops short of recommending a reworking of the Sarbanes-Oxley Act, instead saying that there are a number of improvements that could be made to the law's much-maligned internal control requirements.
Committee director Hal Scott, a Harvard Law School professor, highlighted several ideas for Section 404 in a press conference. He said that improved materiality standards, perhaps in the form of a different definition of "materiality," could go a long way towards ensuring that auditors look for controls that significantly matter to a company's processes and bottom line. Scott said that that materiality standard should also be carried over into a discussion about financial statements and restatements. More actionable guidance is also needed, which Scott noted that the Public Company Accounting Oversight Board is already working on. Scott also said that the committee is suggesting that regulators explore the possibility of only auditing critical business processes annually, and conduct inspections of less critical issues on a regular cycle.
Finally, Scott said that the report calls for Congress to also consider liability caps for auditors, as well as the introduction of safe harbors, though it stops short of advocating for either option. In addition to the 404 changes, the committee's other major initiatives suggested that Congress step in to force federal and state regulators to better coordinate investigations, and that a number of "best practice" changes be implemented to heighten shareholder rights.
The capital markets panel contains representatives from an array of business interests, including the chief executives of two major accounting firms, current and former officials at the New York Stock Exchange and NASD, investment bankers, and prominent private investors.
The 135-page report, which outlines 32 recommendations, is available at www.capmktsreg.org. -Alicia Korney
SEC SIGNS OFF ON PCAOB BUDGET
WASHINGTON, D.C. - Just a few days after receiving the Public Company Accounting Oversight Board's proposed budget for 2007, the Securities and Exchange Commission unanimously approved the document, which includes a 4.2 percent increase in funds, setting next year's outlays at $136.4 million.
The board's budget, less registration fees collected from accounting firms throughout 2006, forms the basis for the assessment of accounting support fees in 2007. The budget also includes a provision that the board will tap into an excess of its working capital reserve fund to reduce the overall accounting support fee by $10 million next year.
The 2007 budget projects that the board will assess $122.4 million in accounting support fees. The majority of the board's outlays will be for personnel expenses related to hiring auditors to conduct audit firm inspections.
MAYER HOFFMAN EXPANDS AGAIN IN MARYLAND
CUMBERLAND, MD. - Mayer Hoffman McCann has expanded its presence again in Maryland, with the acquisition of the 14-employee Riggleman Smyth Accounting Services LLC. Financial terms of the deal were not disclosed, though Riggleman Smyth's partners were admitted as shareholders in MHM.
In November, Mayer Hoffman added offices in Easton and Denton, Md., through the acquisition of Beatty Satchell & Co. MHM is closely associated with CBiz. The combined firms were ranked No. 10 on Accounting Today's 2006 list of Top 100 Firms, with revenues of $434 million.
