Audit Watchdog Faces SEC Over Bid to Name AccountantsDave Michaels
The main U.S. accountant regulator vowed to press forward with a controversial plan to name the auditors of public companies that has been the focus of a five-year battle with industry.
The Public Company Accounting Oversight Board plans in the coming months to reissue the proposal, which has been opposed by accounting firms that say it will make auditors a bigger target of lawsuits. PCAOB Chairman James Doty told members of the Securities and Exchange Commission, who approved his agency’s $250 million budget Wednesday, that the new measure should be more acceptable to the SEC and the audit industry.
“We have reached an approach that we think is workable and avoids some of the problems that we discovered,” he said.
The tussle over rules speaks to the gulf between the PCAOB, which funds itself with fees paid by public companies, and the SEC, which must approve the board’s spending and rules.
The PCAOB says affixing a name to audits, which have long carried only the firm’s identity, would improve accountability and let investors discern good auditors from bad ones. The SEC has questioned whether disclosure would create barriers for companies raising capital.
The SEC’s pushback is the latest challenge to the accounting board, which has struggled to complete regulations in the face of industry lobbying. The board last year dropped an effort to require companies to switch auditors every decade -- a plan that was unpopular with companies and accountants alike -- after House lawmakers voted to block its authority.
The SEC now plans to hire an additional accountant to take “a fresh look” at the board’s activities, “with a focus on improving its timeliness,” the SEC disclosed as part of its budget proposal on Feb. 2.
“The SEC is telling them, ‘Get back to your core function,’” said Dan Goelzer, a former acting chairman of the accounting board who now is a partner at Baker & McKenzie LLP. “They got a little bit diverted off into these other policy-level or disclosure-focused projects that don’t relate directly to the way audits are performed.”
Doty announced today that he plans to hire an outside consultant to help the agency speed up the pace at which it issues rules. He told reporters after the meeting that he couldn’t say how much the consultant would cost.
SEC Chief Accountant James Schnurr said in December that the accounting board should work on rules that govern how audits are performed, rather than policies focused on disclosure or conflicts of interest.
“Some of the most important projects to update auditing and quality-control standards that are on the PCAOB’s agenda simply have been moving too slowly,” Schnurr, a former auditor at Deloitte LLP, said at an accounting-industry conference.
SEC Commissioner Daniel Gallagher, who also has called for the accounting board to refocus on performance standards, said Wednesday that the PCAOB’s “limited standard-setting resources have been focused too heavily on disclosure projects.”
“To the extent that this focus on disclosure comes at the expense of making meaningful progress on core audit performance standards, which would drive improved auditor performance, those priorities need to be reexamined,” Gallagher said.
The battle over naming auditors began in 2009, when the board sought to have accountants affix their signatures to their annual audits of public-company books.
The accounting industry decried the effort, citing a worry it would make them bigger targets for lawsuits. The board then proposed to print the name of the lead partner without asking for a signature.
The SEC sided with the accounting industry, saying that even that level of disclosure could complicate companies’ efforts to raise money, Goelzer said. Once auditors are named publicly, they could have to sign off each time a company sold equity or debt to the public.
“That is the source of the tension between the two agencies about partner identification,” Goelzer said.
Facing opposition from the SEC and the accounting industry, Doty recently offered a new option -- allowing firms to disclose the name in a separate public notice filed with the board.
“That seems like an elegant solution to the whole thing, which allows you to avoid the debate over additional liability,” said Harvey Goldschmid, a Columbia University law professor and former SEC commissioner who sits on advisory boards for the audit industry and the accounting board.