In one of his last public speaking appearances before stepping down as chairman of the Public Company Accounting Oversight Board November 30, William McDonough told a roomful of financial and accounting executives that, while much progress had been made in restoring public confidence, maintenance is an ongoing mission.
"This is not a project that can ever be considered finished," McDonough told several hundred CFOs, controllers and financial executives attending Financial Executives International's 24th Annual Current Financial Reporting Issues Conference -- the third time he has spoken to the group. He said that restoring confidence requires "unfailing focus and vigilance, and not just from accountants."
"At your meeting [three years ago] you were probably wondering what to make of this new organization. All you had was the Sarbanes-Oxley Act, which was three months old. But look how far we've come. When I joined the PCAOB in 2003, I was employee No. 42. The PCAOB is now a vibrant institution of more than 400 employees in nine cities."
It was a highly unlikely law," McDonough said, in reference to SOX. "But at the heart of it was a recognition that a key player in our economy -- the investor -- had been betrayed. It was a clarion call for change. It was not passed to make it easier for issuers and auditors, but for investors."
McDonough said that he was leaving at a time when the accounting profession "is wiser, stronger and more confident in its own mission" than it had been for a long time. Ultimately, he said that it would be the profession that will restore the public's confidence, and it would be the accounting profession "that will deserve the credit for restoring that confidence."
McDonough said that although companies have been required to maintain internal controls over financial reporting since the passage of the 1977 Foreign Corrupt Practices Act, the passage of SOX responsibilities for internal control brings financial reporting "to an entirely new level."
In 2004, the oversight board inspected the eight largest firms in the U.S. and 91 smaller audit firms and examined portions of 500 audits from the largest eight. McDonough said that the eventual inspection tally in 2005 would be roughly 280.
Currently, nearly 1,600 firms -- including 640 non-U.S. firms -- are registered with the PCAOB.
And despite his board's most recent inspection reports uncovering significant audit deficiencies at the Big Four firms, he said that it had "done nothing to shake my view that these firms are capable of the highest-quality auditing."
He also said that the inspection reports tended to examine high-risk audits and were in no way a random sample, but rather a "looking for trouble" approach.
Conversely, McDonough quipped that the inspection reports had done nothing to shake his view "that Congress acted wisely in creating independent oversight of the profession." Although he is stepping down, the 71-year-old McDonough told attendees that stepping down was not synonymous with retirement. "I don't play golf," he said. "It's just a mattering of deciding what I want to do when I grow up."
Separately, Securities and Exchange Commission Chairman Christopher Cox said that he didn't expect to name a permanent successor for McDonough by the time McDonough leaves on Nov. 30. Cox said that, in all likelihood, he will name an interim chief for the board until a successor is named.
