The day after Thanksgiving is known in America as Black Friday – the opening of the pre-Christmas shopping season, when merchants launch midnight sales and dubious oddball discounts, and hordes of turkey-stuffed consumers storm the malls like barbarians at the gates.
This year the 4th of December should go down in Washington as Dull Grey Wednesday – the day that Jim Doty, chairman of the Public Company Accounting Oversight Board, hosted a public meeting to release his long-announced and little-awaited plan to require the auditors of US public companies to identify their lead partners by individual name.
By contrast to the chaos in the malls, hordes of investors and other financial information users yawned with indifference and turned back to shopping and fantasy football.
Partner naming has been simmering on the PCAOB’s burners since 2005, well before its July 2009 concept release, but has not improved with age – instead it’s an issue on which neither side of the “discussion” has a persuasive case or advocacy to be proud of.
The profession’s ongoing opposition – here summarized – quakes at the fear of heightened criticism, individual partner harassment and increased litigation exposure. But years of personal partner identification in the European environment are to the contrary, illustrating only a complete absence of concern.
Even in the UK, where partner naming is relatively new, an illustrative example is Deloitte’s report dated May 21, 2013 on Vodaphone’s March 31 year-end financial statements. There the personal signature of its lead partner has attracted not one word of commentary for his selfless if coerced beau geste – even though that report is an important early adoption of the new British requirement for the quantification of audit and reporting materiality – a topic that is evolutionary and by rights worthy of serious attention and assessment, and happily discussed in the press by the head of Deloitte’s UK practice.
If “who cares?” should be the profession’s reaction to partner name disclosure, then, the case in its favor is no better founded.
As predictable, chairman Doty and his staff cite an academic bibliography that purports to find virtue and benefit in partner naming. But a serious dose of skepticism is indicated.
If the triviality of the issue were not compelling, it would be important to call out the confirmation bias lurking in Doty’s invocation. That’s because the scales of academic persuasion are barely quivered, much less tipped, by such “research” examples as ostensibly erroneous failures to issue going-concern opinions in Sweden, supposedly “abnormal” accruals in the UK, or a sampling of individual partners in China which credits heightened conservatism to those with Big Four experience.
It would be so dispiriting, if it mattered. Not only does recent experience with the fictive nature of Chinese financial reporting support the proposition that “quality Chinese accounting” ranks as an oxymoron up with “Italian justice system” or “Holy Roman Empire.” As well, the validity of report qualifications as a measure of auditor aggression is surely overwhelmed by the requirements of the global regulatory regimes for the anodyne language of clean opinions; witness the unqualified pre-failure reporting of the likes of GM, Fannie Mae and Lehman Brothers.
While reporters such as Edith Orenstein posted pre-release place-holders, the profession’s unremitting critics were in high dudgeon – yet the search still continues for a defensible reason to isolate the leader of an entire audit team, when any engagement of more than minimal complexity must involve a cohort of supporting personnel with distributed expertise and responsibilities sufficient to the task.
Francine McKenna, for example – endorsed by the Grumpy Old Accountant -- urged the politically unfeasible disclosure of an entire partner cohort. But few of the Big Four partners on her villains’ list were actually lead partners, which means that her argument proves too much – since listing an entire partner team plays squarely into the profession’s argument that the audit firm itself is answerable for its performance quality.
To retail investors, it would be a challenge to name the audit firms that serve their portfolio companies – much less would they register the identity of a single partner. While for those charged with decisions that matter – boards of directors, their audit committees and corporate executive leadership – the lead partner is as personally close to hand as a speed dial or a Siri instruction, and public naming is laughably irrelevant.
It may be predicted that the American regulators will have their way, by the middle of 2014 -- perhaps on partner naming, if not on a list of issues of more legitimate substance -- such as the final burial of the miserable topic of mandatory auditor rotation, or the yet-further retreat from the convergence of international accounting standards, or the PCAOB’s inconsequential steps to address the unsatisfactory state of the scope and content of the audit report itself.
Only proving yet again, that in the public evaluation of a regulator, the concept of “first, do no harm” is probably the best to be hoped for.
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