Incredibly, the SEC has done something I didn't think was possible. It has, in its implicit blessing of Herbalife's selection of PwC as auditor, given the Big 4 and other audit firms more leverage in future debates over independence with regard to past non-audit services. And the last thing the Big 4 needs is more leverage over one of its regulators.
Yes, I admit that this probably qualifies as "exceptional circumstances." I mean, how often will a partner at a Big 4 firm be busted for sharing a client's material non-public information with a golf buddy that results in his firm pulling three years of audit opinions? Hopefully not that often. Sure, it's good for laughs and pageviews and things, but the audit industry isn't really hurting for bad publicity. Plus, there's integrity and all that stuff.
Bad press or not, audit firms pretty much get their way all the time. Maybe that's why very, very few people show sympathy for them when they get in trouble.
So with this in mind, the SEC, knowing full well had they been all, "Hey guys, rules are rules" wouldn't have taken too much grief about it, made an exception. Okay, maybe that was the reasonable thing to do. But this will bite the Commission in the ass down the road. Any time there's a potential conflict over past services, a company can simply go the Commission and say, "Look our audit committee talked it over. This situation isn't that different from Herbalife. So can you just let us have this one?" The audit firm isn't going to raise a fuss.
And what's the SEC going to do? Say, "Sorry, that was an exceptional circumstance."? That makes them sound flimsy. And if you're a regulator, wouldn't you rather be ballbuster than inconsistent? A regulator should enforce the rules as written, not carve out exceptions when a company gets in a pinch. The worst that happens is the company sues to get a judge to force the SEC to allow the engagement of a conflicted auditor. At least you'd still have some principles left.
But maybe I'm wrong. Maybe audit firms won't pull the Herbalife card that often and it'll just be another example of an industry running roughshod over its regulators and the rules, basking in impunity. I suppose we're all getting used to it.