The auditing watchdog has been making headlines with its recent ideas and concepts; more work for treasurers?
After nearly two years fairly idling with an interim chairman, the Public Company Accounting Oversight Board has come out swinging. It has resurrected old ideas and come up with new ones all in the hopes of making the audit industry more accountable and more transparent. Bottom line: auditors beware.
And treasurers, too. Since the financial crisis, corporate treasurers are finding themselves continuing to be drawn into accounting and reporting issues. And more demands from the PCAOB on auditors assuredly means more work for treasurers (and internal auditors) in gathering all the information those external auditors will require.
Rotate. Recently, PCAOB chairman James Doty, who was appointed in January 2011, made news when he discussed the idea of external auditor rotations. This was a proposal first floated in the early 2000s but was roundly rejected by many in the audit community and elsewhere as a bad idea. But given the financial crisis, Chairman Doty thinks it should be considered again.
“I believe it is incumbent on the PCAOB to take up the debate about firm tenure and examine it with rigorous analysis and the weight of evidence in support and against,” Chairman Doty said in a speech in early June. “I don’t have a predetermined idea as to whether the PCAOB ultimately should adopt term limits. My only predilection is that the PCAOB deepen the analysis of how we can better insulate auditors from client pressure and shift their mindset to protecting the investing public.”
To be sure, treasurers sometimes would probably like to see their auditors take a hike, so to speak. But they also realize it probably wouldn’t work in practice. “While I kind of relish the idea, mandatory rotation bothers me,” said one treasurer. “On the other hand, auditors do become overwhelmingly entrenched…that’s why it’s such a pain to change them.” But ultimately it would just create even more work than there already is, the treasurer said. “It’s bad enough when your auditor brings in a new guy to the team. Every time they do that it ends up being more work.” And because corporations are so complex, “it would probably be easier to commit fraud,” he added.
One corporate internal auditor, who also sees it as a lot of additional work for companies, felt similarly. “Overall I think the current position is adequate,” he said referring to the practice of rotation of auditor partners already in place. “The cost of ramp-up and ramp-down for changing out a firm would be horrible, and the buck is sure to stop with the corporations not the auditors.”
Still, look for a PCAOB “concept release” on audit rotations soon.
Some explaining to do. More recently, PCAOB put forward the idea of auditors not just explaining that a company has followed the rules, but also explaining their findings in more detail. In doing so, the agency on June 21, 2011 issued a concept release to discuss “alternatives for changing the auditor’s reporting model.”
In remarks during the meeting announcing the concept release, PCAOB Board Member Steven Harris said that investors want to hear “directly from the auditor about the potential risks of material misstatements in the company’s financial statements and how the auditor addressed those risks during the audit process.” With current reporting methods, he said, there is no effective means for auditors to pass on important information to investors and others.
Investors want this because “they expect auditors to be independent and skeptical professionals who have neither mutual nor conflicting interests with their audit clients, and who are willing to exercise unbiased judgment and report honestly on what they find,” Mr. Harris said. He added that auditors are not forthcoming enough. “I believe public company auditors know much more about their audit clients than they currently are telling investors.”
Comments on the concept release are due Sept. 30, 2011.
More work. Whether PCAOB will get all it wants in terms of auditing governance remains to be seen. Still, it is yet another regulatory body entering the fray and likely will increase workloads for everybody. For some members of The NeuGroup’s peer group the added work has already led to the creation of a separate team or even department within treasury to handle accounting and control.
While treasurer have been trying to expand their roles, this is perhaps not what they had in mind.