PCAOB

PCAOB: Audit Firms Missing the Point of Auditing

Audit firms are still having some trouble pleasing the audit overlords at the PCAOB — particularly with Auditing Standard No. 5. ICFR is the new WTF, though the PCAOB sees audit firms making progress. Unfortunately, the firms are also kinda missing the point of this whole exercise. Compliance Week has the details: The next round […]

The PCAOB Has a Flickr and It’s Everything You’d Expect it to Be

Earlier today when I was pulling a press release off my fifth most visited website after GC, the Daily Mail, Facebook, and perhaps a tube that shall remain unnamed, I noticed the fancy little icons at the top of the page letting me know that the PCAOB has a Flickr account. Perplexed, I immediately gchatted […]

The PCAOB Is Looking For a Few Good SAGs

Full press release is below as we don't care enough about this to spend an hour rewriting it: Washington, DC, May 1, 2014 — The Public Company Accounting Oversight Board is soliciting nominations for its Standing Advisory Group (SAG) for the 2015-2017 three-year term. The deadline for submissions is June 30, 2014. The Board is […]

CohnReznick Is Probably Better at Audits Than You, Per PCAOB Inspection Report

Yesterday, we shared McGladrey's not-all-that-bad inspection report results. Now, it's time to crown a world champion audit firm… CohnReznick! The words every audit firm wants to hear from the PCAOB: The inspection procedures included a review of aspects of the Firm's auditing of financial statements of 11 issuers. This review did not identify any audit […]

McGladrey’s Latest PCAOB Inspection Reveals McGladrey Is Not Grant Thornton

Well, the PCAOB is slowly but surely cranking out more 2012 inspection reports and today, McGladrey gets to celebrate an accomplishment: being better at auditing than Grant Thornton (though I suppose given GT's embarrassing audit failure rate, that isn't saying much). Not only that, they're slightly better than EY and only slightly worse than PwC. […]

Per PCAOB Board Member, Facebook Will Not Sufficiently Prepare You As an Auditor

"For new accountants, the focus on documentation can be a difficult transition — the world of texting, Facebook postings, and tweeting may not fully prepare you. And, of course, communication skills are important even beyond the accountant's documentation of audit procedures. Being able to express yourself effectively is key to your relationships with your co-workers […]

If China Won’t Play, the PCAOB Will Find Someone Else to Play With

Keep holding out, China, the PCAOB don't need to check your stinkin' work anyway: Washington, DC, March 31, 2014 — The Public Company Accounting Oversight Board today announced that it has entered into a cooperative agreement with the Supervisory Board of Public Accountants (RN) of Sweden relating to the oversight of audit firms subject to […]

Save the Date: PCAOB April Public Meeting on the Auditor’s Reporting Model Proposal

The PCAOB is preparing for its April 2-3 public meeting this week, and while I really wanted an excuse to spend two days in Washington trolling the PCAOB IRL, I decided catching the webcast from the comfort of my Lovesac in my pajamas was a much better decision. The panelists aren't much to write home […]

One Guy at the PCAOB Thinks the PCAOB Should Consider Its Language

Aha! Pointy-headed professors aren't the only ones who think the PCAOB's use of the term "audit failure" is totally dramatic and possibly unnecessary. From the JofA: The PCAOB’s use of the term “audit failure” in its inspection reports of audit firms appears to have caused confusion and misunderstanding about the severity of inspection findings among […]

Per the PCAOB, Being Registered with the PCAOB Isn’t the Same as Being Scrutinized by the PCAOB

For some of you, being subject to PCAOB inspection is easily the worst part of your miserable life. For others, simply registering with the PCAOB can lend the kind of automatic credibility shitty restaurants get by slapping a "People Love Us on Yelp" sticker in the window. Imagine boasting you are "PCAOB-registered" without never having […]

Is the PCAOB’s “Audit Failure” Rate Really a Little Dramatic?

Here's the deal. Last week, Mark Peecher and Ira Solomon published an opinion piece on CFO.com titled PCAOB’s ‘Audit Failure’ Rate Is Highly Suspect. Just so we know these guys might have some idea what they are talking about, Mark teaches accounting at the University of Illinois Urbana-Champaign and Ira is dean of the A. […]

The PCAOB’s Valentine’s Day Gift to Us is More Time to Comment on Partner Naming

Compliance Week has our friendly reminder that if you have something to say about audit partner naming, you better speak now or forever hold your peace: As preparers wrap up their year-end financial reports, they'll have a few extra weeks to make their views known on a proposal to begin naming engagement partners in the […]

Forget Auditor Rotation, the PCAOB Has Bigger Fish to Fry in China

As you know, I sat through the SEC Open Meeting webcast yesterday just to catch the copious number of thank yous, Doty giving the prepared remarks I already had, and the conclusion we all knew the SEC would come to, which was approving the 2014 PCAOB budget. BOR-ING. Well out of that meeting, everyone seemed […]

After an Afternoon of Thank Yous, the SEC Has Approved the PCAOB’s 2014 Budget

In case you missed the thank fest that was today's SEC Open Meeting, the PCAOB showed up to get its 2014 budget of $258.4 million approved by the Commission after everyone went around the room and thanked one another for their hard work for capital markets. Repeatedly. Chairman Jim Doty validated the $12.8 million increase […]

Duh of the Day: One in Three Audits Fail, Per the PCAOB

Lodi dodi, we likes to party, we don't cause trouble, we don't bother nobody. This comes from Emily Chasan via CFO Journal: More than one in three audits inspected by the U.S. government’s audit watchdog were so deficient the auditors shouldn’t have signed off, an official said this week. Why do I feel like we […]

Let’s Give Up on the PCAOB But Not on Regulating Auditors

Ed. note: Paul Gillis Ph.D, CPA is a Professor of Accounting at the Guanghua School of Management, Peking University in Beijing, China and co-director of its IMBA program. He is a former member of the PCAOB Standing Advisory Group, he also writes the China Accounting Blog and you can follow him on Twitter. He's not pointy-headed, […]

The PCAOB is a (Necessary) Pain in the Ass(ets)

Ed. note: this is unconventional even for us as we usually don't hand over the soapbox to trolls but in this case, it seemed fitting as Big4Veteran has been waiting YEARS for us to publish the last thing he submitted to us while graciously throwing down his "wisdom" in the comment section just as long. […]

The PCAOB Is Grateful To The PCAOB For the PCAOB’s Work

Jim Peterson has subjected himself to not one but two viewings of the PCAOB's December 4 meeting, so that alone makes him a hero because ain't nobody got time for that. But on his second viewing, the delirium kicked in and he started counting how many times the PCAOB thanked the PCAOB for the PCAOB's […]

Per Jim Doty, The Firms Think PCAOB Inspections Improve Audit Quality

Let's discuss. This just came out of his mouth not 5 minutes ago. Doty: "the firms tell us that they believe PCAOB inspection has improved audit quality." #aicpaSEC — Adrienne Gonzalez (@adrigonzo) December 9, 2013

The PCAOB Is Trying to Give Itself a Small Raise

And by "small" I mean $12.8 million. The Public Company Accounting Oversight Board today approved its 2014 fiscal-year budget of approximately $258.4 million and its 2013-2017 strategic plan. The budget is $12.8 million, or 5 percent, above the Board's 2013 budget of $245.6 million. The Board also approved its strategic plan for 2013-2017 to serve […]

If You’re Not Doing Anything Next Monday, Hang With the PCAOB As They Hammer Out Their Budget

I was totally going to go but, um, I have to wash my cat's hair that day: PCAOB to Consider 2014 Budget and Strategic Plan Washington, DC, Nov. 19, 2013 The Public Company Accounting Oversight Board has scheduled an Open Meeting for Monday, Nov. 25, at 3 p.m., to consider adoption of the PCAOB budget […]

If the PCAOB Thinks Firms are So Deficient, Can We Rely on Audits or Not?

A nearly 40% "deficiency" rate for the big firms according to the PCAOB is news to no one (at least no one around here) but let's look at this post by Emily Chasan in CFO Journal for WSJ anyway: The Big Number: 37.5% That’s the proportion of audits by large accounting firms found to have […]

More PCAOB Comment Letters Need to Complain About the Issuer-pay Model

If you're like us, you've been anxiously awaiting comment letters on the PCAOB's auditor reporting model proposal. There's nothing better than self-righteous firms penning letters filled with thinly-veiled condescension. Plus, the U.S. Chamber owes us all an honest effort after phoning in their initial response.    So far none of the major accounting firms, the AICPA, CAQ, […]

Here’s What You Need to Know About the PCAOB’s Proposed Makeover to the Auditor’s Report

This morning the PCAOB held their open meeting to discuss "Proposed Auditing Standards Regarding the Auditor’s Report and the Auditor’s Responsibilities Regarding Other Information." PCAOB Chairman James Doty called it a "watershed moment for the auditing in the United States." And yeah, I suppose it is. I mean, the auditor's opinion hasn't changed in 70 […]

The Auditors’ Auditors Got a Clean Audit Opinion From Their Auditors

The PCAOB posted their 2012 annual report to its website today and it's filled with all kinds of interesting information. It's the end of a Monday, so we only managed to pull a few examples: There were nine audit firms inspected in 2012 that had more than 100 public company audit clients in 2011. They […]

Deal Between PCAOB, Chinese Is a Lose-Lose Situation

Yes, the PCAOB got a lousy deal by putting Jim Doty's name on the Memo of Understanding with China's Securities Regulatory Commission and Ministry of Finance, but Professor Paul Gillis writes in the Wall Street Journal that the Chinese don't have any room to talk, either: Without inspections, investors can't trust Chinese audits. Investors in Chinese […]

Deloitte Is the Audit Firm That Has Had the Most Trouble in China… By Far

Cruising around el Twittero this morning, we came across something interesting shared by Francine McKenna: Which auditor has most China fraud problems? Deloitte by a landslide. RT @chinajinrong: @retheauditors tradingfloor.com/posts/china-fi… — Francine McKenna (@retheauditors) May 29, 2013 This post by Fredrik Oqvist, founder of China RAI, has a table that shows which audit firms have had […]

Deloitte’s 2012 PCAOB Inspection Report Shows That the Firm Is Less Awful at Auditing Than It Used to Be

The PCAOB news is not letting up. Today, the Board released the 2012 inspection report for Deloitte. Considering the turnaround time in years past, this is pretty fast. The 2011 report was issued last December. If you count yourself as one of those people who enjoy A) reading these reports and B) quality auditing, then you will […]

The PCAOB’s Disappointing Deal with Chinese Regulators

As is its wont, the PCAOB has made a major announcement in very close proximity to a major American holiday. I've been assured in the past that this bad timing is not intentional, but from a PR perspective, it has the tendency to soften the thunder of an important message. But whatever, we'll go with […]

Ernst & Young Latest Big 4 Firm to Have Part II of PCAOB Inspection Report Released

Okay, remind me — there's a saying about "three" and "trend" or "pattern" or something? Forget it, not important. What is important — at least we've made the argument that it is — is that the PCAOB released Part II of Ernst & Young's 2009 inspection report. That makes three out of four Big 4 […]

Guest Post: The PCAOB Is Our Parents Now

Ed. note: The following was written exclusively for Going Concern by a Big 4 auditor who wished to remain anonymous. 

The PCAOB is turning into our parents. Or at least they are using the same tactics in handing out punishment. “We know you were up to no good last night, so if you just tell us what you did we’ll take that into consideration when deciding how long to ground you.”

The PCAOB Is Sorry for the Mess

With PwC CAKEgate in the rearviewmirror, the PCAOB appears to have taken a look around and decided it wants to tidy up a bit by shuffling around its auditing standards. Naturally, Doty & Co. like to run things by everyone first…everyone who has an opinion anyway: The Public Company Accounting Oversight Board has scheduled an […]

Here’s Why Releasing Part II of the PCAOB Inspection Reports Is Important

I know what a lot of you are thinking — "The PCOAB is a bunch of couldn't-hack-it-in-public know-nothings that like nothing more than making hard-working auditors' lives a living hell. And, oh, Part II doesn't mean jack squat." FANTASTIC! Then you won't mind that I'm going to spend the next few hundred words telling you […]

At Least PwC Doesn’t Have to Worry About Improving the Supervision of Its Auditors Anymore

Last week the PCAOB dropped Part II of PwC's 2008 and 2009 inspection reports. This was only the second time a Big 4 firm's Part II had been released since the audit profession was blessed with government regulation. It was like a fire rainbow or an unassisted triple play. Rare! Exciting-ish! We pored over the […]

PwC Loves CAKE and Other Interesting Things from the Expanded PCAOB Inspection Reports

I don't know if anyone else has noticed this, but reading about audit procedures is incredibly dull. It's nearly as dull as actually performing some of these procedures which probably explains why the PCAOB was forced to release Part II for the 2008 and 2009 inspection reports. Luckily, reading about the failure of the most […]

PCAOB Member Jay Hanson Repeats His Belief That Auditor Rotation Is Not Gonna Happen

The Brits can do whatever they want; Mr. Hanson has a story and he's sticking to it:    Having reviewed the comment letters and feedback from the round table panelists and others, it is clear to me that there is little support for mandatory audit firm rotation. As I noted in my statement when we issued the […]

The PCAOB Chairman Is Still Talking About Auditor Rotation

Generally speaking, there are two camps when it comes to the idea of auditor rotation or "term limits" as some like to call it.  There is the camp that sees it as an area worth exploring as part of a larger conversation around auditor independence and objectivity. And then there is the camp that does […]

The PCAOB Is Really, Really Serious About Checking Chinese Auditors’ Work

Oh are we still on this?: The head of the U.S. audit watchdog said on Wednesday his organization may need to resort to enforcement actions against auditors based in China if they fail to hand over documents to U.S. regulators. Jim Doty, head of the Public Company Accounting Oversight Board, told the U.S. Securities and […]

Life After Public Accounting: Harassing Auditors For a Living Isn’t a Bad Gig If You Can Get It

All busy season long, we'll be discussing exit opportunities for those of you feeling like overworked Chinese slave labor counting down the days from your cubes. Remember, there is life after public accounting, even if it doesn't feel like it now. If you've made a break for it and are living the life of your […]

The PCAOB Has Conveniently Released 2011 Inspection Reports For Deloitte, Grant Thornton and Ernst & Young the Friday Before Christmas

Oh I bet you guys think you're slick for this one! Thanks so much for ruining my Doomsday. So here's what we've got. Let's start with Deloitte: The PCAOB identified a few particular deficiencies it didn't like: The inspection team considered certain of the deficiencies that it observed to be audit failures. Specifically, certain of […]

Here’s the New Checklist from the PCAOB

It's been a couple years since the PCAOB issued an auditing standard so I guess they wanted to squeak something in before this Mayan thing took a hold. Shall we cram this in before the fires start? Yes. Let's. Here's a piece of the official screed from the Board: The new standard and related amendments […]

KPMG Chairman: Auditor Rotation Is a ‘Terrible Idea’

It's more or less understood by everyone, with a few exceptions, that pursuing mandatory auditor rotation is a giant waste of time. There has been much discussion of the issue — from the hallowed walls of a PCAOB open meeting to the slums of the Going Concern comment section — and while there has been […]

PCAOB Sick of Audit Firms Playing Dumb with ICFR Standard

The PCAOB is still chugging along spitting out reports about how sucky the firms are at doing audits, this time releasing their observations from the 2010 inspections of domestic annually inspected firms regarding deficiencies in audits of internal control – which, in fewer words, is a dig at how crappily the firms are testing internal […]

PCAOB Member Jay Hanson Can’t Imagine a World with Auditor Rotation

On Monday, PCAOB Chairman James Doty gave a speech where he mentioned, among other things, that "auditor term limits" was something the Board would consider in order to "protect the auditor's independence."  Undoubtedly, this was disheartening news to auditors who count themselves as the Big 4 variety because they've gone on record to voice opposition and […]

Auditors Will Be Happy to Know That Term Limits Are Still on the Table

In a keynote speech at the AICPA's National Conference on SEC and PCAOB developments, Chairman Jim Doty passed on the opportunity to mention extremely recent developments and instead focused on things like the importance of independent auditing to "our economic success" and audit firm culture and the PCAOB's current initiatives. In fact, Mr. Doty doesn't mention […]

Hiring Watch ’13: PCAOB

Yesterday, the PCAOB held an open meeting discussing its plans for being the most dominating force in public accounting regulation over the next few years. Within these plans is a strategory to not just be the type of regulator that points out the things that you royally fucked up, but also to be a resource […]

Report: That Sloppy McGladrey Audit Was Definitely Maybe Probably Unity Bank

HEY, everyone remember that really sloppy audit that 3 (then) McGladrey & Pullen auditors got smacked on the wrist and/or face for when the PCAOB found out they threw in a bunch of necessary documentation after the fact? Jonathan Weil over at Bloomberg seems to have unpuzzled the whole thing and is saying the mystery […]

Three McGladrey Auditors Learn a Tick in Time Saves Nine

Everyone knows if you're going to add evidence after an audit is over, you have to do it before the documentation completion date and you better be sure to document the additional material thoroughly. But for McGladrey (then McGladrey & Pullen) auditors Dale Arnold Hotz, Jyothi Nuthulaganti Manohar and Michael Jared Fadner, an impending PCAOB […]

PwC Wants the PCAOB To Get Better

PwC's November just got more annoying. According to the PCAOB's latest inspection, 41 percent of the 60 PwC audits inspected were not up to snuff, up from 37 percent last year. Issues called out by the PCAOB included failures to identify, or to address appropriately, financial statement misstatements, including failures to comply with disclosure requirements, as […]

PCAOB Discovers That Some Firms Consider Audit Quality to Be a Nice Idea That Doesn’t Work in Real Life

PCAOB Board Member Jeanette Franzel, CPA, CIA, CMA, CGFM, gave a speech at University of Tennessee Corporate Governance Center today that discusses "Current Trends and Issues in Public Company Auditing." That's nice and all but the first half of the transcript is more or less a history of auditing and the PCAOB. The second half finally gets […]

China Agrees to “Look But Don’t Touch” PCAOB Visits

Board member Lewis Ferguson tells of China's teasing ways in a speech that he's giving at the California State University SEC Financial Reporting Conference in Irvine: As a first step toward further cooperation [with China], we are working toward and have tentatively agreed on observational visits where PCAOB inspectors would observe the Chinese authorities conducting […]

KPMG’s PCAOB Inspection Report Shows Firm’s Audit Quality Was Consistently Meh with Last Year

Late yesterday the PCAOB released the first Big 4 firm inspection report with none other than KPMG (in full on page 2). Compliance Week reported that the House of Klynveld more or less stayed consistent with last year's findings, which basically amounts to everyone shrugging with indifference:  In its first published report from the 2011 […]

Mandatory Audit Firm Rotation: Regulatory Sit ‘n’ Spin

It's been about a year since the PCAOB crapped out Release No. 2011-006, "Concept Release on Auditor Independence and Audit Firm Rotation." Some people in the profession think the PCAOB has no real intention of mandating audit firm rotation; rather, these professional skeptics believe the PCAOB just brought it up to appear relevant. The PCAOB […]

PCAOB’s Latest Report Finds That Auditors of Broker-Dealers Suck, Too

PCAOB Auditor Wrecking Ball Tour 2012 rolls on with the an interim report on the auditors of broker-dealers. And this time there's 100% deficiency!  From the Executive Summary of the Report on the Progress of the Interim Inspection Program Related to Audits of Brokers and Dealers:  This report presents observations from inspections of portions of […]

Just in Case There Are Audit Committee Members Out There Slacking on the Job, The PCAOB Has Released a Guide to Its Inspections That Should Catch You Up on Things

Are you a member of an audit committee that's been phoning it in? Or are you a newbie that's feeling upstaged by your fellow audit committee buds that are the so-called financial experts? Maybe you're skeptical of the words coming out of your audit firm's piehole(s) but you're not sure how to respond? Fear not! […]

Crowe Horwath May Have the Worst PCAOB Inspection Report Yet

PCAOB Terror Tour 2012 continues with the release of the inspection for Oakbrook Terrace's own Crowe Horwath. Up until this point, we thought that no one was going to make a run at the deplorable performances of Deloitte and McGladrey but ol' Crowe (as opposed to Old Crow) has managed to do it. PCAOB examiners found […]

Scoring Sarbanes-Oxley

As we pointed out in this morning's roundup, the New York Times' Room for Debate is discussing the success/failure of Sarbanes-Oxley. Sunday marks SarbOx's 10th birthday so naturally people in the accounting and compliance world are getting all nostalgic about it and yeah, okay, nostalgia can be fun sometimes. The Times had four contributors in […]

PCAOB vs Public Accounting (War)

Ed. note: This is Lee St. Mark's second submission as we chug along in the Going Concern freelancer finals. His initial submission can be found here. You know what to do. It's no secret – the PCAOB tears at the soft underbelly of the accounting industry on a daily basis. I've seen them show up […]

Survey Surprises Surveyors After Finding Support for Auditor Rotation

In a recent survey of public companies assessing views on Sarbanes-Oxley a decade after its adoption, Protiviti also asked companies what they think of the PCAOB's recent suggestions that mandatory rotation might improve auditing. Nearly half of all survey respondents agreed that rotation would have a positive impact. Among large accelerated filers, Protiviti said 47 […]

The Number of Financial Statement Audit Deficiencies Is Blowing Up

So says an analysis of PCAOB inspection report data: The Survey of Fair Value Audit Deficiencies was released Wednesday by Acuitas, Inc., an Atlanta CPA firm that practices litigation and business valuation services. The analysis found that fair value measurement and impairment deficiencies accounted for 52 percent of all the audit deficiencies cited in the […]

Audit Leaders Use AICPA Council to Vent About ‘Crisis’ at Partner Level

Knowing you guys as well as I do, I realize it's pointless to bore you with details from Council; like how Tom Hood got snapped at by a very frustrated Maryland senator in her office or what people wore to last night's black tie gala. However, I will share with you an interesting panel yesterday […]

The PCAOB Inspection Report of Grant Thornton Could Have Been Worse

The Board inspected 41 audits at 21 of Grant Thornton's 51 offices. Fifteen issuers were cited in the report that included various failures, primarily related to "obtain[ing] sufficient appropriate audit evidence to support its opinions on the financial statements and on the effectiveness of [internal controls over financial reporting]." There was everything from failure to […]

Vault Accounting 50: The Not Quite Top 25 (2013)

Since we've sufficiently gave attention to the top 25 firms in this year's Vault Accounting 50, as well as those firms whom you all think are the bee knees, we know will present the firms that are a merger or two or three away (or the endorsement of another golfer that will pose in body […]

McGladrey’s PCAOB Inspection Report Is Pretty Awful

The PCAOB continues tearing through audit firms like a Texas twister on a random Tuesday during tax season, as it unleashed its fury on McGladrey yesterday. How bad was it? Well, Deloitte can certainly feel better about itself. The Board reported deficiencies in nine of the nineteen (~47%) audits inspected. Deloitte, if you remember, had […]

The PCAOB Knows You’re Monkeying Around with Documents

The PCAOB's Director of Enforcement and Investigations, Claudius Modesti, is on to your little game. You know, the one where you get all shifty with your audit workpapers once the word spreads around your office that inspectors will giving your ticks and ties the stinkeye. Oh? Not familiar with anything of the kind, you say? This […]

Happening Now: Live-Tweeting the PCAOB Auditor Rotation Open Meeting

If you have absolutely nothing to do this afternoon and were unable to book a flight to DC in time to sit in on the fantastic PCAOB independence and auditor rotation meeting happening NOW, Colin is live-tweeting from @going_concern all afternoon. If you are looking for snarky, possibly unnecessary criticism of Big 4 (+ GT) […]

PCAOB Is Giving You a Second Chance to Tell Them How Much You Love the Idea of Auditor Rotation

Yesterday, Monday Morning Auditor that everyone loves to hate, the PCAOB, announced that they would be having an open meeting on March 21-22 that will focus on auditor independence and rotation. Sorry! I meant auditor term limits. Anyway, there are going to be several big names on various panels including Paul Volcker, Harvey Pitt, Arthur Levitt, […]

An Open Letter To the PCAOB From the Going Concern Comment Section

I believe this particular PCAOB-hostile grunt has spoken: Dear Mr. G – I hate to break this to you, but accountants do not respect the PCAOB. We HATE the PCAOB. This organization does nothing but bring misery to our lives, for no matter how good our work product is, this group comes along and finds […]

PwC Japanese Affiliate Has Two of Its Ugly Audits Exposed

Today, Bloomberg's Jonathan Weil wrote his fourth column exposing clients of a Big 4 audit firm whose PCAOB inspection report reveals that the audit performed was less than stellar. This time around, JW exposes two clients of PwC's Japanese Affiliate Kyoto Audit Corp.: The report [in full, below] said the board’s staff reviewed the firm’s audits for […]

Jeanette Franzel, CPA, CIA, CMA, CGFM, Is Your New Public Company Accounting Oversight Board Member UPDATE: And Not Everyone Is Impressed!

The overlords at the SEC have spoken and sweet Jesus in a manger, they like letters behind a name. Ms Franzel will replace Dan Goelzer who is a founding member of the Board and served as its perpetually acting chair from August 2009 to January 2011.  Franzel is dumping the Government Accountability Office, where she […]

Senator Carl Levin Wants Auditor Names

Back in October, the PCAOB officially proposed that audit partners be required to slap their name on the audit report of clients that register with the SEC. For those inside the profession, this proposal isn't exactly popular, as that would put a specific name and a specific face with audit failures.  In other words, no […]

PCAOB Has an Extra $20 Million to Spend on Field Trips to China

PCAOB Chairman James Doty shot the breeze with the SEC for awhile today, speaking about, among other things, how the Board would handle this boatload of Chinese filers who don't seem to know their asses from their elbows when it comes to accounting and their auditors who are similarly clueless. Doty assured the Commission that […]

Almost Everyone Thinks Mandatory Auditor Rotation is an Awful Idea

Back in August, the PCAOB issued a concept release on audit firm rotation and invited anyone who had the time and/or energy to comment on it (as did we). In the wonky little corners of the accounting blogosphere, there was strong opposition to rotation from Jim Peterson and Francine McKenna (although their reasons differ from your […]

Here’s the Ernst & Young PCAOB Inspection Report for Your Reading Pleasure

Yesterday, we discussed Deloitte stinking up the joint with its PCAOB inspection report. While the firm, at large, probably puts out hundreds of quality audits, the PCAOB gumshoes found that 45% of audits stamped with a green dot had deficiencies. Today, the Board stuffed our stocking with Ernst & Young's inspection report and while it's not […]

As it Stands Right Now, Deloitte Was the Worst Big 4 Audit Firm in 2010

Yesterday, the regulatory love child of Paul Sarbanes and Michael Oxley, the PCAOB, issued its 2010 inspection report for Deloitte. Deloitte was the third Big 4 firm to have their report issued this year with PwC and KPMG being issued just before Thanksgiving. While the reports for both PwC and KPMG were of the "we're […]

You Can Officially Check “Updated COSO Internal Control – Integrated Framework” Off Your Wish List

Another Festivus miracle!  The Committee of Sponsoring Organizations of the Treadway Commission (COSO) – an organization providing thought leadership and guidance on internal control, enterprise risk management, and fraud deterrence – has released, for public comment, an updated Internal Control – Integrated Framework (Framework) intended to help organizations improve performance with greater agility, confidence and […]

PCAOB Reminds Auditors That It’s Still Ugly Out There

Just when you thought the economy was looking up, out peeks the PCAOB with a friendly reminder to the auditors out there that current economic conditions warrant a tad more due care than usual.

Kids, allow us to introduce you to Staff Audit Practice Alert No. 9.

The Public Company Accounting Oversight Board today published a Staff Audit Practice Alert to assist auditors in identifying matters related to the current economic environment that might affect the risk of material misstatement in financial statements and, therefore, require additional audit attention.

“Today’s volatile economic environment may affect companies’ operations and financial reporting, which has implications for audits,” said PCAOB Chairman James R. Doty. “The alert reminds auditors of their responsibilities under these conditions.”

Staff Audit Practice Alert No. 9: Assessing and Responding to Risk in the Current Economic Environment, updates Staff Audit Practice Alert No. 3, which was issued in December 2008, in light of current global economic conditions and recent enhancements to PCAOB standards.

Many of the matters discussed in Practice Alert No. 3, Audit Considerations in the Current Economic Environment — including fair value measurements, accounting estimates, going concern, and financial statement disclosures — continue to be critical in audits of 2011 financial statements. Certain of the PCAOB standards referenced in that alert regarding assessment of, and response to, risk, however, were superseded in 2010 with the Board’s adoption of eight new risk assessment standards (Auditing Standard Nos. 8-15).

“This practice alert discusses issues posed by the current economic situation and highlights certain requirements in the new risk assessment standards. Auditors should be alert to the new requirements contained in the risk assessment standards and how those requirements relate to audits performed in the current economic climate,” said Martin F. Baumann, PCAOB Chief Auditor and Director of Professional Standards.

We know you guys cannot wait to read this one, so by all means, knock yourselves out.

If you’re too busy to take the three minutes to read it, I’ll sum it up thusly: we’re doomed, so maybe SALY isn’t such a good idea after all.

So glad we’re all clear on that. Now, back to the JIT for all of you…

In Case the Tryptophan Doesn’t Work, Here Are the KPMG and PwC PCAOB Inspection Reports for Your Reading Pleasure

Actually, if you’re in to this sort of thing, it could make for some pretty interesting reading.


We pointed to a couple of reports this morning (and there are more) out there on the Board’s criticisms of the two firms, so we won’t repeat them here. The most notable thing seems to be each firm’s response to the report. KPMG went with the standard three-paragr��������������������er that promises that they’ll suck less at auditing in the future.

2011_KPMG_LLP_US


But as Floyd Norris pointed out, PwC’s Chairman and Senior Partner Bob Moritz as well as Assurance Leader Tim Ryan put their names on the firm’s response to the Board’s inspection that outlined what steps were being taken to improve the audit quality, which is a first. The firm also released this statement from BoMo, acknowledging the slight uptick in deficiencies:

PwC is built on our reputation for delivering quality. We also recognize that the role we play in the capital markets requires consistent, high-quality audit performance. We therefore are focused on the increase in the number of deficiencies in our audit performance reported in the 2010 PCAOB inspection over prior years. We are working to strengthen and sharpen the firm’s audit quality, including making investments designed to improve our performance over both the short- and long-term.

2011_PricewaterhouseCoopers_LLP

So you can all this – signatures, action plans, etc. – for what it’s worth but the messaging has certainly changed and it differentiates PwC from KPMG. Will have to wait and see if Deloitte or E&Y follow suit.

Senators Grassley and Reed Would Like to Make Every Bit of PCAOB Wrist Slapping Public

For some time now, quite a few people have been asking for PCAOB disciplinary proceedings to be made public. Since your beloved Board came into existence, the process of slapping around sketchy auditors has been secret much to the chagrin of those people that would like audit firms to take just a little bit [pointer and thumb about an inch apart] of responsibility when they royally screw things up. It’s all for the investors, you see. After some rib jabbing by Board Member Dan Goelzer and Chairman Jim Doty, Chuck Grassley (R-IA) and Jack Reed (D-RI) have picked up the flag by introducing a bill that would make the proceedings public:

The bill would change a provision of the Sarbanes-Oxley Act that requires the Public Company Accounting Oversight Board to keep disciplinary proceedings against auditing firms confidential.

Undoubtedly, this will rankle auditors who would prefer that all the skeletons stay firmly stuffed in closets. Of course what many people forget is that the secretive nature of the PCAOB disciplinary proceedings are the exception rather than the rule:

[Grassley and Reed] argued that the PCAOB’s closed proceedings run counter to the public enforcement proceedings of other regulators. Not only the SEC, but also the Labor Department, the Federal Deposit Insurance Corporation, the U.S. Commodity Futures Trading Commission, and other government agencies use public proceedings, as does the self-regulating Financial Industry Regulatory Authority. Nearly all administrative proceedings brought by the SEC against public companies, brokers, dealers, investment advisers and others are open, public proceedings.

The Reed-Grassley bill would make PCAOB hearings and all related notices, orders and motions, open and available to the public unless otherwise ordered by the board. The PCAOB procedure would then be similar to SEC Rules of Practice for similar matters, where hearings and related notices, orders, and motions are open and available to the public.

This all seems like a pretty good idea. I mean, what makes auditors so special? Exactly. They’re not. They just happened to go from self-regulated to regulated in a flash and had a few K Street types twist in some features to Sarbanes-Oxley that kept things under wraps.

The problem, as a few people have pointed out, is that the Board still isn’t really that tough on auditors. Sure, a few more people might suffer some public embarrassment (which we’re happy to point out), but will investors really be better off? That remains to be seen but at least we’ll all be able to revel in the good fun of mocking the offenders.

Senate Bill Would Make PCAOB Disciplinary Hearings Public [AT]

Wanted: Full Set of Dentures for Auditor Watchdog

The dynamics at both the PCAOB and the Big Four are horrible. The incentive at the Big Four is to keep prices down to the point at which it’s impossible for a new entrant to break into their charmed group; after all, if it means they end up cutting corners, the worst that happens is that they get gummed by the toothless PCAOB. [Felix Salmon/Reuters]

The Big 4 and the Revolving Door

Last week the bane of Big 4 auditors existence, the PCAOB, broke their cherry on releasing Part II of an inspection report for a Big 4 firm. The honor went to Deloitte, who sufficiently blew off the Board’s recommendations for 12 months, which led to the release of Part II.

Bloomberg‘s Jonathan Weil, who usually sits back with popcorn while these things go down before chiming in, got to it today but with a twist that you probably weren’t expecting:


board members had recused themselves from participating in meetings or discussions this year concerning Deloitte, because of past or current ties to the firm, according to three people with knowledge of the matter.

The board members — Lewis Ferguson, Jay Hanson and the board’s chairman, James Doty — were appointed by the Securities and Exchange Commission in January. Doty had been a partner at the law firm Baker Botts LLP, where Deloitte is a client. Ferguson was a partner at the law firm Gibson Dunn & Crutcher LLP, which also represents Deloitte. Hanson, a former partner at the accounting firm McGladrey & Pullen LLP, has a daughter who works for Deloitte in its Phoenix office.

The board’s policy is to not disclose recusals, in spite of its mission to “further the public interest,” as if these are none of the public’s business. “Recusals are confidential,” Colleen Brennan, a board spokeswoman, said. Doty, Ferguson and Hanson declined to comment. A Deloitte spokesman, Jonathan Gandal, said: “The PCAOB itself does not comment on recusals, and as such it would be inappropriate for us to do so.”

It’s a pretty nice scoop by Jon and we’re all used to the silence from the PCAOB and Deloitte when someone gets the best of them but honestly, is anyone surprised? Does anyone care? The answer to the first question is “No.” The answer is the second question is “Maybe.”

With the exception of Mr. Hanson (family connection, we’ll give you that one), the recusals seem a little silly since neither Ferguson or Doty actually worked directly for Deloitte. Okay, so Baker Botts and Gibson Dunn have Deloitte has a client. Which Big Law firm doesn’t? It’d be pretty tough to find any DC lawyer who didn’t do some time at a firm that represented Deloitte. That goes for any Big 4 firm. They’ve all got deep pockets with lots of legal problems, of course they’re going to hire the best lawyers money can buy. Does that make guys like Ferguson and Doty unfit to make decisions with regard to that firm?

Well, for one year it does. Under the Board’s ethics code, Doty and Ferguson will be able to vote on matters involving Deloitte in January. Still, Weil doesn’t like the smell of it. And it doesn’t stop with the PCAOB:

[T]alk about being wired: The SEC’s chief accountant, James Kroeker, is a Deloitte alumnus. At the Financial Accounting Standards Board, which writes U.S. accounting rules, the wife of one board member, Russell Golden, is a Deloitte partner.

Look, we like Jon (even if he is a Colorado grad). But how do you find accounting policy makers who aren’t from the biggest, best connected firms that have the most resources? Should the Commission start appointing academics to develop policy? Eeek. Or maybe we’ll let the public make recommendations, “Yeah, my cousin’s a CPA out of Tulsa. Really knows his stuff. He’d be good.” Please.

Dan Goelzer’s seat is coming up and he’ll be replaced by a CPA. Weil hopes that the SEC will find “a qualified person without Big 4 allegiances” but with the revolving door spinning, he’d better hope for a wild card.

Goldman Sachs Envy Gains New Meaning at Big Four [Jonathan Weil/Bloomberg]

PCAOB Publishes Part II of Deloitte’s 2008 Inspection Report, First Ever for a Big 4 Firm

They really, really, really don’t appreciate it when you blow off their recommendations. Here’s the statement from the Board:

The Public Company Accounting Oversight Board, in anticipation of questions about the publication of previously nonpublic portions of its May 19, 2008 inspection report on Deloitte & Touche LLP, issued the following statement today:

“The quality control remediation process is central to the Board’s efforts to cause firms to improve the quality of their audits and thereby better protect investors. The Board therefore takes very seriously the importance of firms making sufficient progress on quality control isn inspection report in the 12 months following the report. Particularly with the largest firms, which are inspected annually, the Board devotes considerable time and resources to critically evaluating whether the firm did in fact make sufficient progress in that period. The Board can and does make the relevant criticisms public when a firm has failed to do so.”

So to clarify, Deloitte had until May 19, 2009 to get their methods up to par but failed to do so. To put this into a little bit of context, Jim Doty was not yet the Chair of the PCAOB and Barry Salzberg was still the CEO of Deloitte’s U.S. firm. Does this mean that the PCAOB has been stepping up its game and this is the first instance of many to come? Hard to say but the audits that this inspection report cover are nearly five years old, so it’s debatable as to the value of Part II being made public now.

For Deloitte’s part, here’s current CEO Joe Echevarria’s statement:

“Deloitte is committed to the highest standards of audit quality and as newly elected CEO, it is my foremost priority. Our commitment extends from the top and cascades throughout our entire organization. We place great value on the PCAOB’s input and continue to work with the Board in support of our shared objectives. We recognize that audit quality is fundamental to protecting investors and ensuring the effective functioning of the capital markets.

“We have complete confidence in our professionals and the quality of our audits, and agree that there were and always will be areas where we can improve. In our drive for continuous improvement, we have been making a series of investments focused on strengthening and improving our practice, and will continue to do so to make Deloitte the standard for audit quality.”

In other words, a non-response response. However, it’s much more measured than Deloitte’s response to the initial release of the report. Their response letter spelled out their feelings quite clearly:

Professional judgments of reasonable and highly competent people may differ as to the nature and extent of necessary auditing procedures,conclusions reached and required documentation. We believe that reasonable judgments should not be second guessed and therefore disagree with a number of comments as indicated[.]

Deloitte’s letter is located Appendix C. You can read the full report, including all the details from Part II that were previously unpublished, on page 2.

PCAOB_2008_Deloitte

Muddy Waters CEO: There Are Some Big 4 Partners in China Conspiring to Defraud Investors

As you probably heard, the PCAOB officially put out a proposal earlier this week for audit partners to be named in the annual reports of public companies. It would also require “registered firms to disclose the name of the engagement partner for each audit report already requirethe form” and “disclosure in the audit report of other accounting firms and certain other participants that took part in the audit.”

While most Big 4 audit partners are probably feeling a little chapped by this whole proposal, there is at least one person going on record (by way of PCAOB comment letter) that feels that it doesn’t go far enough. That would be Carson Block, the CEO and founder of research firm Muddy Waters. In Block’s letter (in full on page 2) to the Board he writes that not only should the engagement partner be identified but that he or she should be putting their name on the audit opinion because “[it] will decrease investors’ future losses to fraud and gimmicky accounting by billions of dollars.”

That on it’s own is enough to get more than a few people riled up. But as we indicated, there are some conspiracy and fraud accusations as well:

Even the most reputable auditors in China seem to be in a race to the bottom. We believe that there are particularly egregious situations in which some Big Four partners in China offices have actually conspired with their clients to defraud investors. Further, it is a reasonable proposition that the conflict of interest inherent in the Chinese auditors’ business model also affects the quality of US company audits.

Now before your knickers in a twist, don’t forget that this is the guy who called Sino-Forest a “Ponzi Scheme for the 23rd Century” which more or less looks to be accurate. Further, if you consider all the trouble Big 4 firms have had with Chinese companies listed in the U.S. and elsewhere, it doesn’t seem to be that much of a stretch that some partners would just say fuck it and work with their clients to keep a lid on the shenanigans than go through the pain of actually doing their jobs.

Regardless, with these accusations the PCAOB may try to make another run at getting the Chinese to play ball.


Carson Block 102011

PCAOB Officially Proposes That Audit Firms Name Names

For some time now, the PCAOB has been talking about making audit partners famous (at least to investors that are paying attention) in ways that they aren’t too thrilled about. Earlier today the Board issued a proposal for comment that will do just that.

The proposed amendments would:

• require registered public accounting firms to disclose the name of the engagement partner in the audit report,
• amend the Board’s Annual Report Form to require registered firms to disclosgagement partner for each audit report already required to be reported on the form, and
•require disclosure in the audit report of other accounting firms and certain other participants that took part in the audit.

So if you can consider yourself an astute observer of auditing policy and regs, they’d love to hear your thoughts. However, it would be greatly appreciated if you didn’t take your cues from the FASB letters and kept things constructive.

All of the Board Members made statements, including PCAOB Chairman Jim Doty (full statement on page 2) who sees this latest proposal as good sense:

I fail to see why shareholders in BNP Paribas, listed on the Euronext Paris exchange, should be able to see the name of the engagement partner in the audit report, but shareholders in Citigroup, listed on the New York Stock Exchange should not. Indeed, the names of engagement partners for some European companies that are listed on the NYSE are disclosed in U.S. filings. Why are shareholders in France Telecom to be favored over shareholders in AT&T?

And then there’s Steven Harris’s statement (in full on page 3). Harris, who is known to speak frankly about auditors, finds the proposal okay enough but would really like to see the audit partners’ John Hancocks:

While I support an identification of the engagement partner, I continue to strongly support, and would have preferred, a requirement for the engagement partner to actually sign his or her name on the audit report. My views, which I stated when the Board last publicly discussed the issue in July 2009, have not changed. Very fundamentally, I believe that nothing focuses the mind quite like putting one’s individual signature on a document.

And for good measure, he threw in this:

Many find it ironic that auditing firms in the United States, whose business is providing assurance about the transparency provided by others, resist publicly providing their own financial statements. There is no apparent reason that the auditing firms that act as gatekeepers to our securities markets should not be as transparent to investors as the companies they audit.

If you agree with Mr. Harris and happen to have a copy of your firm’s financial statements, feel free to pass it along. Or if you’d rather not wait to make your thoughts known on the Board’s proposals, you may drop them in the comments below.

Doty Statement on Transparency Proposal

Harris Statement 10-11-11

PCAOB, Possibly Fed Up with China’s Stonewalling, Goes After Some Low-Hanging Fruit

The Public Company Accounting Oversight Board today announced a cooperative agreement with the Financial Supervisory Authority of Norway for the oversight of audit work performed by public accounting firms that practice in the two regulators’ respective jurisdictions. “With this agreement, Norway’s FSA and the PCAOB are joining forces to improve audit quality and protect investors,” said PCAOB Chairman James R. Doty. “I am pleased that the PCAOB is continuing to make progress in overcoming the obstacles that have in the past prevented PCAOB inspections in Europe.” [PCAOB]

Audit Partners Are About to Get Famous

But probably not in ways they would prefer:

In a recently updated standard-setting agenda, PCAOB Chief Auditor Marty Baumann says the board is working on the proposal to address concerns about audit transparency. The board published a concept release in July 2009 that asked for feedback on whether the engagement partner should be required to sign the audit report. Based on feedback to that release and subsequent discussions with the board’s advisory groups, the PCAOB is preparing a new requirement for audit firms to say in their audit reports which engagement partner at the firm supervised the audit and who from outside the audit firm participated in the audit.

PCAOB Plans Rulemaking on Identifying Auditors [CW]

Earthquake Causes PCAOB Offices to Be Evacuated

Tweeth John Carney:

Board spokeswoman Colleen Brennan didn’t answer her phone, so we can only assume everyone is still filing back in or just turning this into a nice opportunity to grab the afternoon pick-me-up. If your office was evacuated, tell us below.

UDPATE: she does have email, thank the maker, and she responded to us so we assume everything is hunky dory. We’ll keep you updated with other news.

Who Has Thoughts on Mandatory Auditor Rotation?

Because the PCAOB is giving you until December 14th to make your views known.

“One cannot talk about audit quality without discussing independence, skepticism and objectivity. Any serious discussion of these qualities must take into account the fundamental conflict of the audit client paying the auditor,” said PCAOB Chairman James R. Doty.

“The reason to consider auditor term limits is that they may reduce the pressure auditors face to develop and protect long-term client relationships to the detriment of investors and our capital markets,” Chairman Doty added.

Don’t fret anti-rotaters, the Board did invite everyone to weigh in on the idea that they “should consider a rotation requirement only for audit tenures of more than 10 years or only for the largest issuer audits.”

[PCAOB]

PCAOB Bans Former Auditors From Faking the Audit Trail For the Near Future

The PCAOB has banned former Ernst & Young partner Peter O’Toole from associating with a PCAOB-registered firm for the next three years and fined him $50,000 for his part of a 2009 scheme to fake audit paperwork. E&Y removed O’Toole from the audit engagement team in June of 2010 and canned him several months later in September. The three year ban from audits is the longest bar that the PCAOB has imposed on a partner of a Big 4 accounting firm to date.

“These actions threatened to undermine the integrity of PCAOB inspection processes, and the ability of the Board to discharge its mandate to inspect the auditors of public companies,” said James R. Doty, PCAOB Chairman in a statement. “The Board moved swiftly to address this conduct, having commenced litigation against these respondents within seven months of learning of their conduct. I commend the Board’s Division of Enforcement and Investigations for its timely and effective work,” he added.

The PCAOB has also banned Darrin Estella from working with a PCAOB-registered firm for two years in connection with the improper creation, addition, and backdating of audit documentation in this case. Estella was a senior manager with E&Y’s Boston office and also let go in September of 2010.

The Board found that, shortly before a PCAOB inspection of an E&Y audit, O’Toole and Estella — acting with O’Toole’s knowledge and authorization — created, backdated, and added a document to the audit working papers that related to the most significant issue in that audit. The Board also found that O’Toole authorized other members of the audit engagement team, including Estella, to alter, add, and backdate other working papers in advance of the PCAOB inspection.

Additionally, the Board found that O’Toole and Estella provided a written document to PCAOB inspectors in which E&Y represented to the Board that no changes had been made to the audit working papers following the documentation completion date for the audit. Neither O’Toole nor Estella ever disclosed to the PCAOB inspectors that, in fact, the working papers were altered after the documentation completion date and shortly before the inspection.

The Board found that O’Toole and Estella’s actions violated PCAOB Rule 4006, which requires cooperation with Board inspections, as well as PCAOB Auditing Standard No. 3, which governs audit documentation.

The PCAOB has not released the name of the company involved, who hired E&Y as  independent auditor in 2002. E&Y expressed an unqualified opinion on the company’s September 30, 2009 financial statements, which led to notice by the PCAOB that an inspection of the unknown company’s audit was being performed on March 30, 2010. The partner, senior manager and manager on the engagement were given notice on March 31, 2010. The inspection fieldwork was set to begin on April 19, 2010.

This comes on the heels of an earlier PCAOB decision which censured 27-year-old Jacqueline Higgins for her part in the scheme. Word is she has since taken a job with McGladrey’s Boston office (unconfirmed rumor), who could probably use the help.

So You Want to Work for the PCAOB…

You could have a worse career path… like this lady.

Currently, the PCAOB is seeking the following professionals:

* Accountants and Auditors, especially those with extensive auditing experience in:

* International Financial Reporting Standards
* Industry expertise (banking, insurance, oil and gas pharmaceuticals)
* Fair value measurements
* IT auditing
* Forensic Accountants
* Enforcement Attorneys and Accountants

Their own employees say great things about their employer, like Greg, an Associate Director out of Atlanta who gushes “the most exciting part of working here is that we are still a fairly new organization. My experiences with the PCAOB have enabled me to utilize and expand on the skills I acquired both in industry and public accounting and still make it home in time for dinner.”

Or Todd, an Inspections Specialist out of Denver who says “When I was recruited and interviewed, they talked about work-life balance. Everybody talks about having work-life balance, and I think as auditors, we all took that talk with a grain of salt. But then to come here and see it’s actually true, well, that was a nice surprise. At the same time, I continue growing here and developing my career. It really is a nice balance.”

Well then, sounds like a sweet gig.

The PCAOB offers all kinds of benefits such as tuition assistance, 401(k) and retirement, a PPO health plan and a metric shit ton of paid time off.

You’ll probably have to actually apply with them to get any real salary info, so if big-time bureaucracy and work-life balance are what you’re after, get on that.

Who Wants a $10,000 Scholarship from the PCAOB?

Any accounting students that happen to have an above-average aptitude for accounting or auditing will be happy to know that the PCAOB has been given the go-ahead to award fifty-two $10,000 scholarships for the 2011-2012 academic year. There are some conditions, however, including:

• Be enrolled in a bachelor’s or master’s degree program in accounting
• Demonstrate interest and aptitude in accounting and auditing
• Demonstrate high ethical standards
• Not be a PCAOB employee or a child or spouse of a PCAOB employee

In addition, we think it makes sense that anyone with “Ernst” or “Young” in their name will be forced to undergo a more rigorous examination of their qualifications. Also anyone named “Arthur Andersen” should be immediately ineligible. If you have other conditions you’d like to see attached to these scholarships, leave them below.

And here’s the list of schools:
Brigham Young University
Central Washington University
CUNY Bernard M Baruch College
DePaul University
Eastern Michigan University
Eastern University
Fairfield University
Florida State University
George Washington University
Georgia Southern University
Golden Gate University
Hope College
Indiana University-Purdue University-Indianapolis
Indiana Wesleyan University
Kean University
Lewis University
Louisiana State University and A & M College
Michigan State University
Middle Tennessee State University
Missouri State University
North Carolina State University
Northern Illinois University
Nova Southeastern University
Rhode Island College
Tulane University
University of Alabama
University of Colorado-Denver
University of Connecticut
University of Florida
University of Georgia
University of Hartford
University of Illinois at Chicago
University of Illinois-Urbana-Champaign
University of Louisiana at Lafayette
University of Maryland-University College
University of Michigan-Ann Arbor
University of Minnesota-Twin Cities
University of Missouri-Columbia
University of North Carolina-Charlotte
University of North Carolina-Greensboro
University of North Texas
University of Notre Dame
University of Oregon
University of Pittsburgh
University of Southern California
University of Southern Mississippi
University of Texas at Austin
University of Texas at Dallas
University of Virginia
University of Wisconsin-Eau Claire
Walsh College of Accountancy & Business
Weber State University

PCAOB, SEC to Be All Up in China’s Business Next Week

Perhaps you’ve heard that some U.S.-listed Chinese companies have had some trouble with their financial reporting. Often times this leads to CFOs quitting, auditors resigning or workpapers being held hostage. None of which are good. Occurrences such as these have been going on for a little while and more recently the SEC admitted that they had, in fact, heard something about it. Perhaps even more surprisingly, a Chinese official also confessed that some of these companies weren’t exactly on top of their shit and in some may not have the faintest idea of what they’re doing.

All this excitement has finally gotten the teams at the SEC and PCAOB worked up enough that it has been decided that they’re popping over to Beijing to meet with the country’s Ministry of Finance and the China Securities Regulatory Commission next Monday and Tuesday to see what’s what.

“This meeting is the commencement of our accelerated efforts with the People’s Republic of China to forge a cooperative resolution to cross-border auditing oversight. I believe we share a common objective with Chinese regulators to protect investors and safeguard audit quality through our mutual cooperation,” said James R. Doty, PCAOB Chairman.

The delegation will be led by Board Member Lewis H. Ferguson and include staff from the PCAOB’s Office of International Affairs and Division of Registration and Inspections, and the SEC Office of International Affairs and Office of the Chief Accountant. The delegation will meet with senior leadership of the Ministry of Finance and the CSRC.

“The purpose of this meeting is to provide an opportunity to exchange information about how each country conducts inspections of auditing firms and to move toward a bilateral agreement providing for joint inspections of China-based auditing firms registered with the PCAOB,” said PCAOB Board Member Ferguson.

Reuters reports that Ferguson considers the trip a “confidence-building exercise,” just in case you were still a little queasy on Sino-Forest, et al.

Statement on Delegation to China [PCAOB]
U.S. audit watchdog, SEC plan Beijing visit [Reuters]

PCAOB Member Steven Harris Shares Some Thoughts on Auditors

For anyone that missed it earlier, the PCAOB issued a concept release today putting out some ideas for changes to the auditor’s report. The members of the Board also took the opportunity to say a few words and Mr. Harris saw an opportunity to point some things out:

The events of the last few years have been a case study of the inability of auditors to provide investors with any meaningful signal about increases in financial reporting risks when management assessments or estimates change dramatically, or when debates over significant accounting issues become difficult or contentious.

And he added the following for good measure:

Out of the ten largest bankruptcies during the financial crisis, only two had going concern opinions. During the year leading up to their bankruptcy filings, the market capitalization of the eight companies without going concern opinions declined from a collective $75.5 billion in the year prior to their respective bankruptcy filings to a collective market capitalization of just under $700 million at the time of their filing – a 99% loss in investor value.

[via PCAOB]

Here Are the PCAOB’s Ideas for Changes to the Auditor’s Report

Now before you get all worked up about these, the Board is inviting everyone to throw out comments before September 30th, make other suggestions and participate in a roundtable during the third quarter in case you are inclined to heckle them for making your life more difficult. Anyway, here’s what they’ve got:

• An auditor’s discussion and analysis;
• Required and expanded use of emphasis paragraphs;
• Auditor assurance on other information outside the financial statements; and,
• Clarification of language in the standard auditor’s report.

These are just suggestions mind you, so if you’ve got something better in mind, feel free to share below.

Fact Sheet

Broker-Dealers, Prepare Thyselves for More Intrusive Audits

SEC commissioners will vote today on proposed changes to broker-dealer auditing and reporting rules at a meeting in Washington. As with the 2009 rules, which tightened oversight of advisers’ custody of client assets after Bernard Madoff Ponzi scheme was exposed, the new changes increase oversight of the minority of about 300 broker-dealers who hold customers’ cash.

The proposals — which would be opened for a 60-day comment period — would require that a broker-dealer’s internal controls be checked by a registered public accounting firm and would let regulators examine the broker-dealer’s audits. Broker-dealers would have to file quarterly reports describing whether they have access to client money and how any access is controlled. [Bloomberg]

KPMG, Center for Audit Quality Weren’t Too Keen on PCAOB Inspection Documents Being Subpoenaed

Last week, we told you about Jonathan Weil’s latest scoop exposing a PCAOB issuer in an inspection report. The issuer in question was Motorola and it, once again, featured KPMG as the auditor on the receiving end of the Board’s criticism. It was also noted that PCAOB Chair Jim Doty mentioned this particular case (without naming names) in his speech at USC the previous week when he described “one large firm tam was aware that a significant contract was not signed until the early hours of the fourth quarter. Nevertheless, the audit partner allowed the company to book the transaction in the third quarter, which allowed the company to meet its earnings target.”

J Dubs put this all together in a nice little package, citing court documents from a class-action lawsuit in Chicago. What isn’t mentioned in Weil’s column but is spelled out in other court documents that we’ve reviewed is that KPMG and the Center of Audit Quality fought the release of the documents related to the PCAOB’s inspection report because they’re afraid that more lawsuits could result if issuers’ identities are made public.

The CAQ submitted an amicus curiae brief (in full on the next page) stating:

The supervisory model of regulation created by Sarbanes-Oxley and implemented by the PCAOB has thus far worked well and has improved the quality and reliability of audits of public companies. It has worked to the satisfaction of both the Board and the regulated community.

Since the PCAOB’s own Investor Advisory Group issued a report entitled “The Watchdog that Didn’t Bark … Again,” one might say that the Center’s final point is debatable.

Yet, the CAQ argued that if the PCAOB inspection documents were released, “the [Sarbanes-Oxley] Act’s carefully supervisory model will be adversely affected.” That is, the confidentiality afforded to the communication between auditors and the PCAOB would be compromised and would allow Board information into the ‘hands of litigating lawyers.’ The CAQ declined to comment for this post, saying that they did not “have anything to add to the amicus brief.”

In her ruling denying KPMG’s motion (in full, on page 3) to squash the subpoena of the PCAOB documents, Judge Amy St. Eve cited KPMG’s argument that sounds very similar to the CAQ’s:

KPMG argues that “if litigants can compel production of materials related to the PCAOB’s confidential inspection process notwithstanding section 105(b)(5)(A), open and constructive engagement between the PCAOB and accounting firms could be chilled by the threat of increased civil litigation, and the statutory framework carefully crafted by Congress to improve the quality of public company audits could be frustrated.”

So basically auditors are afraid that if their super-special-secret discussions with the PCAOB are out there for all the world to see, they’ll get sued more often. But hasn’t suing audit firms already reached critical mass? Can they really fear more litigation? The only thing that keeps audit firms from being on the same level of litigation risk as tobacco companies is that they aren’t killing people.

Weil and those that agree with him argue that the PCAOB owes it to investors to name names in their inspection reports. To continue keeping issuers confidential protects them from legitimate criticism for shoddy accounting and perpetuating equally shoddy audits. Of course, if you’re an investor and that doesn’t bother you, then maybe you’re okay with auditors trying to stop the release of more information related to their work. Work that cost the investors in Motorola $244 million from 2000 to 2010.

caqamicusbrief

Minute Order 1

Another KPMG Client Gets ID’d in a PCAOB Inspection Report

Back in March, Bloomberg’s Jonathan Weil called attention to a PCAOB report that was pretty harsh on KPMG-Bermuda’s audit of Alterra Capital Holdings. At the time he wrote the column, KPMG, the PCAOB and Alterra weren’t talking but then Alterra filed a 8-K admitting that they were the filer in question.

Today Weil lets the cat out of the bag again and yes it’s another KPMG client, Motorola:lockquote>Four years ago, inspectors for the auditing industry’s chief watchdog discovered that KPMG LLP had let Motorola Inc. record revenue during the third quarter of 2006 from a transaction with Qualcomm Inc. (QCOM), even though the final contract wasn’t signed until the early hours of the fourth quarter. That’s no small technicality. Without the deal, Motorola would have missed its third-quarter earnings target.

The regulator, the Public Company Accounting Oversight Board, later criticized KPMG for letting Motorola book the revenue when it did. Although KPMG had discussed the transaction’s timing with both Motorola and Qualcomm, the board said the firm “failed to obtain persuasive evidence of an arrangement for revenue-recognition purposes in the third quarter.” In other words, KPMG had no good reason to believe the deal shouldn’t have been recorded in the fourth quarter.

This may sound familiar to some of you that read PCAOB Chairman James Doty’s speech from last week when he said this:

PCAOB inspectors found at one large firm that an engagement team was aware that a significant contract was not signed until the early hours of the fourth quarter. Nevertheless, the audit partner allowed the company to book the transaction in the third quarter, which allowed the company to meet its earnings target. Although the firm discussed the timing of the transaction with the customer, it failed to obtain persuasive evidence of an arrangement for revenue recognition purposes in the third quarter. The company had been an audit client of the firm for close to 50 years.

Weil writes, “KPMG has been Motorola’s auditor since 1959; it had been Motorola’s auditor for 47 years at the time of the Qualcomm deal.” So, yeah. How did he piece this one together? Elementary, my dear auditors:

Motorola’s identity was disclosed in public records last month as part of a class-action shareholder lawsuit against the company in a federal district court in Chicago. The plaintiffs in the case, led by the Macomb County Employees’ Retirement System in Michigan, filed a transcript of a September 2010 deposition of a KPMG auditor, David Pratt, who testified that Issuer C was Motorola. KPMG isn’t a defendant in the lawsuit.

Pratt also identified the Motorola customers cited in the board’s inspection report. It’s his deposition that allows me to describe the report’s findings using real names.

The oversight board said a significant portion of the company’s earnings for the 2006 third quarter came from two licensing agreements that were recorded during the last three days of the quarter. One was the Qualcomm deal that wasn’t signed until the fourth quarter. The board also cited other deficiencies in KPMG’s review of Motorola’s accounting for the transactions.

As is their wont, KPMG isn’t talking. Motorola isn’t talking (but maybe there’s another 8-K in our future?). The PCAOB, bound by the law -which, some say, is debatable – isn’t talking. My guess is that Jon Weil will continue to talk…er…write columns shining the lights on shoddy audits until the Board breaks its silence.

Dirty Secrets Fester in 50-Year Relationships [Jonathan Weil/Bloomberg]

PCAOB Chairman James Doty Is Concerned That Some Auditors Either Don’t Care or Are Completely Ignorant About the Notion of Independence

As you may have heard, PCAOB Chairman Jim Doty gave a speech at the University of Southern California yesterday where he discussed among other things, the possibility of mandatory auditor rotation and changing the standard auditor’s report. The prospect of these two changes aren’t exactly something auditors are stoked about but some people are of the opinion that a) auditors like to get a little too chummy with their clients which leads to b) not taking the “independence” thing too seriously and c) the auditor’s report, in its current form, its pretty much worthless.

You can read Doty’s entire speech over at the PCAOB website where touches on all of these but here’s one example around independence that probably qualifies for, in Doty’s words, “[an] approach [to] the audit with an inappropriate mindset”

[An] audit partner’s self-assessment claimed that he “overcame long-standing barriers against non-audit services at [two audit clients] with a series of well-planned meetings and supporting presentations with the Audit Committee Chair, the full Audit Committee, the CEO and the CFO at both companies.”

In response, his reviewing partner noted that he was –

highly alert to cross service line opportunities and has successfully penetrated both of his accounts where few services had been
provided in the past. The results of these efforts were a number of proposals and wins but the efforts will likely impact FY 11 in [a] more significant way.

Anyway, there are other stories of bad auditor behavior, so check the whole speech if you feel so inclined. And while Chairman Doty admitted that “We don’t see these problems in all the files we look at,” it causes he and others to wonder if “these audit partners are unaware of, or simply unconcerned about, the independence rule that should make such considerations irrelevant to their compensation, and why a firm would allow such unawareness or unconcern to continue unabated.”

So flagrantly bending the rules to the point where they might as well be breaking or stupidity? Neither is too flattering.

PCAOB Permanently Bans Utah Accounting Firm, Ex-Managing Partner From Auditing Public Companies

The PCAOB has just made a serious example out of Bountiful (yes, it’s a town), Utah-based Chisholm, Bierwolf, Nilson & Morrill by banning the firm permanently from auditing public companies after “numerous violations of professional standards, including failure to detect fraud.” The Board also barred former managing partner Todd Chisholm for life and partner Troy Nilson for five years.

Curious about what kind of shoddy work the firm performed to get such a slap? Us too. Luckily the Salt Lake Trib has an example:

One of the companies that the firm audited was Powder River Petroleum International Inc., an Oklahoma corporation with offices in Alberta, Canada.

Until it was placed into receivership in 2008, Powder River’s public filings reported that it acquired, developed and resold interests in oil and gas properties. The company resold interest in oil and gas leases to investors in Asia, but reported those investments as income despite also promising investors a return of 9 percent until their principal was recouped, the board said.

That resulted in the company, traded over-the-counter, overstating its revenue by up to 2,417 percent, its pretax income up to 441 percent and assets up to 48 percent.

I called the PCOAB to see if this was the most severe ban every given to a firm and a CPA but couldn’t get an immediate answer. The five year ban also seems pretty severe. Doesn’t seem like too much of a stretch since the Board has only issued 36 disciplinary actions since 2005. I’ll update the post when I get some definitive answers. UPDATE: We’ve been informed that “it’s among the most severe” penalties issued.

It’s also worth noting that two of the firm’s clients – Hendrx Corp. and Jade Art Group – had substantial Chinese operations which wouldn’t be an issue if it wasn’t for this, “Chisholm, who does not speak or understand Chinese, relied on Firm assistants with Chinese language skills to identify audit issues, communicate with management and third-parties, and analyze documents provided by the issuer.”

Maybe those “assistants” were audit wizards, maybe they weren’t but either way, Mr Chisholm might be looking to change careers.

Chisholm

Alterra Blows Off Proxy Advisors; Recommends Shareholders Reappoint KPMG as Auditor

After all the hubbub over the PCAOB inspection report that was brought to light by Bloomberg’s Jonathan Weil, including two recommendations by proxy advisors Glass Lewis and Institutional Shareholder Services Inc., Alterra Capital Holdings has recommended to its shareholders that they vote “FOR” the ratification of KPMG as the company’s independent auditor.


From thc.gov/Archives/edgar/data/1141719/000093041311002842/c65254_defa14a.htm”>SEC Filing dated April 19th (all emphasis is original):

TO THE SHAREHOLDERS

We are writing to bring your attention to a disagreement between Alterra Capital Holdings Limited (the “Company”), on the one hand, and each of ISS Proxy Advisory Services and Glass Lewis (each, a “Proxy Advisor”), on the other hand, with respect to the recommendation by each of the Proxy Advisors to vote “against” the Company’s proposal to ratify the appointment of KPMG Bermuda as the Company’s independent auditors for fiscal year 2011 and authorize the Company’s board of directors (the “Board”) to set the remuneration of the independent auditors at the Company’s Annual General Meeting of Shareholders scheduled to be held on May 2, 2011. The Proxy Advisors’ recommendations are primarily related to a report issued by the Public Company Accounting Oversight Board (the “PCAOB”) regarding the Company’s auditors, KPMG Bermuda. The PCAOB is a nonprofit corporation established by the U.S. Congress to oversee the audits of public companies. One of the principal roles of the PCAOB is to perform inspections of the audit files of accounting firms that conduct public company audits. Each audit firm is selected by the PCAOB for inspection at least once in every three years.

In November 2009, the PCAOB reviewed KPMG Bermuda’s 2008 audit files of a public company client located in Bermuda in connection with a routine periodic inspection. In March 2011, the PCAOB publicly issued its findings in a report dated January 28, 2011 (the “PCAOB Report”). Although the PCAOB Report did not identify the public company by name, an article posted on Bloomberg News on March 30, 2011 alleged that the public company client at issue was the Company (formerly Max Capital Group Ltd.). The Company confirmed that it was the client referenced in the PCAOB’s Report in a Current Report on Form 8-K dated March 31, 2011.

The Proxy Advisors’ recommendations also cite concerns that certain of the Company’s directors and officers previously worked at KPMG.

For the reasons set forth below, the Board disagrees with the Proxy Advisors’ recommendations to vote “against” the Company’s independent auditor proposal. The Board unanimously recommends that you vote “FOR” the ratification of KPMG Bermuda as the Company’s independent auditor.

Since this decision by the Board might not sit well with a few people, they’ve carefully laid out the case as to why sticking with the House Klynveld is the right thing to do. They are as follows:

1. The PCAOB Report did not question the Company’s valuations that are reflected in its financial statements.

2. The PCAOB Report did not impact KPMG Bermuda’s unqualified opinions on the Company’s financial statements in 2008, 2009 and 2010; there was and is no restatement issue.

3. The PCAOB made similar findings regarding all four major accounting firms.

4. The Audit and Risk Management Committee was aware of the PCAOB review and made an informed decision in recommending KPMG Bermuda as the Company’s Independent Auditor for 2011.

5. KPMG Bermuda is independent from the Company.

6. The Audit and Risk Management Committee will reassess KPMG Bermuda’s qualifications and suitability in 2012.

Just a few thoughts on some of these:

• It’s not the job of the PCAOB to question the Alterra’s valuations. That’s what KPMG was supposed to do. The PCAOB said KPMG did a lousy job of getting enough evidence to support those valuations.

• Just because there wasn’t a restatement doesn’t mean the auditors did their jobs correctly.

• Admitting that “all four major accounting firms” had similar findings says a lot about what the Board thinks of auditors.

• Is point #5 supposed to be a reminder for the shareholders that have no business acumen whatsoever?

• Point #6 could be better stated as “Our Board is getting good at jumping through hoops. See you next year.”

Any other thoughts? Leave them below.