No more excuses. It’s time to stop talking the talk and start walking the walk.
Months of speculation ended, ironically, on April 15, when the Securities and Exchange Commission named former Fed official William McDonough to chair the Public Company Accounting Oversight Board.
The pieces for audit reform are in place. The reformation of the profession and restoration of investor confidence must begin now. The war in Iraq has successfully managed to wrest coverage of corporate fraud off the front pages, but much like hanging a picture over a hole in a wall as camouflage, it doesn’t mean it has gone away. It’s only going to become larger. For every past Enron and WorldCom, there is a HealthSouth waiting to happen.
The board is now at full strength, funding avenues have been determined and the board bluntly told the American Institute of CPAs and its Auditing Standards Board that their services as standard-setters will no longer be required.
Although the profession will remain part of an “advisory committee,” that language more or less blared “good riddance” to the institute in Capitol Hill lexicon.
The PCAOB also gained significant audit credibility with the appointment of Baruch College professor Doug Carmichael as chief auditor and director of professional standards for the board. Carmichael, recognized as one of the country’s leading authorities on auditing, will function as an advisor in standard-setting and other matters related to the profession.
McDonough, a Democrat, has carved out a well-respected reputation as a banking regulator. He has had a participatory hand in critical issues such as the collapse of hedge fund Long Term Capital Management and has been critical of such practices as lavish executive compensation and stock options.
Although he is not a CPA, McDonough’s resume lends needed credibility to the oversight board, which has suffered through its share of well-documented setbacks in this, its inaugural year.
The appointment of a tough reformer like McDonough sends a signal that SEC Chairman William Donaldson appears to be somewhat more serious about audit reform than his predecessor. The fact that McDonough was confirmed unanimously by the SEC scored a major early win for Donaldson over his detractors, who argued that his tenure at the financial watchdog would simply be Harvey, Part II.
But now it’s time for press conferences and appointment formalities to end and for the board to get to work. Arguably, there’s nothing tougher than creating a regulatory process from scratch, but the investing public wants to see results, not read endlessly about the educational and career pedigrees of oversight officials.
The days of hanging pictures over holes are, hopefully, over.
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