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. He's a Big 4 refugee (obvs) now in industry and resident (but sometimes useful) GC troll. You can find him on Twitter and by all means, please feel free to tear him a new one if you disagree with any of the following. This isn't B4V's debut as a contributor, but rather an op-ed rebuttal to a post from yesterday.
Andrew Argue’s article regarding the PCAOB earlier this week raised some questions to which I was immediately compelled to respond. Much of what I said in the comments section related to Argue’s dubious use of the term “welfare” in the context of this discussion. I had some comments about class warfare (of course) and his underdeveloped viewpoint on this issue. But most importantly, I commented on the lack of proposed solutions to the problem at hand.
After an extended rant about how the PCAOB is just “regulatory welfare," Argue presents his one and only solution to the problem in a few sentences near the end of his article:
“Let’s not forgot the most valuable currency the profession has: its reputation. I think it's time we go back to that. Rather than being worried about the regulator we're pleasing, let's get back to the fundamentals of capitalism.”
First of all, any talk about the accounting profession’s reputation with respect to auditing public companies is laughable (there are about three or four articles on Going Concern every day where we laugh at audit firm fuck ups). Second, I’d argue that the self-regulation only model previous used is what got us into this mess in the first place (imagine Anthony Weiner self-regulating his own Twitter use). But I think the meat of the above passage is the final sentence. We need to stop worrying about pleasing our regulator and get back to the “fundamentals of capitalism”. I would be really interested to read Argue’s expansion of this idea in his next article.
As I said in the comments section, the greatest form of welfare in the entire accounting profession is a little piece of legislation from way back in the 1930s that began requiring all public companies to obtain an annual audit. Up until SOX was passed in 2002, accounting firms were permitted to charge tens of billions per year to their clients in exchange for performing audits that ranged in quality from mildly shitty (on the high end) to “New York Knicks” (on the low end). But all good things must come to an end (fuck you Enron!)…and now we have more Communism in the form of the PCAOB [Ed. note: sarcastic political jabs redacted].
If we are truly outraged by “regulatory welfare”, then let’s not just get rid of the PCAOB. Let’s make annual audits of publicly-traded companies optional. Let’s get back to the fundamentals of capitalism. Let freedom ring! What could go wrong? But seriously, other than that crazy kook Ron Paul, there probably aren’t a lot of people who would go for this idea. And I’m guessing most people who like this idea probably wouldn’t like it enough to actually invest their own money in the stock market. So where does that leave us?
If reasonable people can agree that public accounting is vital to our society, and self-regulation of public accounting is not a good idea in the modern economy, then we need an external entity to conduct oversight. The PCAOB is still a relatively new organization and they are still getting their feet wet cleaning up a system that took 70 years to fuck up. There is a lot of room for improvement, and the public accounting firms (patriots that they are) and their staff (cheerful that they are) should work diligently with the PCAOB to improve the inspection process. There are and will continue to be problems. But let’s not throw the baby out with the bath water.
[Final Ed. note: if anyone has a viable alternative to the PCAOB and everything that comes with it, speak now or forever hold your peace. Pretty sure that's what B4V was getting at, unless I missed the entire point of this, which is entirely possible. I'll be in the kitchen making popcorn if anyone needs me]