"Kee-rist. Seven years of college, down the drain."
Two “F’s” -- two “D’s” -- and one big, glaring “Incomplete.”
That is the grade report this winter for the American accountancy regulators and standard-setters. If they were already on double secret probation, like Bluto and his fraternity brothers in Animal House, they’d be in the Dean’s office and on track for expulsion.
Start with the failures. First was the low-visibility footnote during the February 5 love-fest by which the SEC rubber-stamped the PCAOB’s new budget. As part of his remarks, the latter’s chairman James Doty said, as of a mere missing line item, “We don’t have an active project or work going on within the board to move forward on a term limit for auditors.”
There’s an ignominious end to an unworthy project. Not that it hasn’t long been obvious that Doty lacked board support, legislative backing or a sound intellectual or empirical basis for his marathon flogging of mandatory auditor rotation -- an idea was neither new nor defensible even when re-launched by the PCAOB three years ago. Somewhere on the report card of the agency’s meager accomplishments, there should be accountability for the waste of time, energy and resources expended in the tedious meetings, road trips and public panels on this misbegotten effort.
A second similar stealth exercise involved the ever-elusive relationship between generally accepted accounting standards in the US and the globally-preferred International Financial Reporting Standards. There, the chimerical “adopto-vergence” -- or whatever mot du jour is now in vogue – received a double hit. The SEC’s February 3 issuance of its latest Five Year Strategic Plan confirmed its long-standing attitude of death-by-inattention – with the anodyne statement (page 8) that “the agency will work to promote higher quality financial reporting worldwide,” while undertaking only to “consider, among other things, whether a single set of high-quality global accounting standards is achievable,” but conspicuously remaining totally silent and without a word of mention of IFRS.
While on January 29, the Financial Accounting Standards Foundation, governing parent of the American standard-setter, actually announced the grant of $ 3 million to support the work of the International Accounting Standards Board in its development of IFRS. While this subvention was touted as supportive of four on-going IFRS projects, skeptics of the long-term dithering on standards convergence would understandably view such an exercise in cross-border funding as if the coach of the American hockey team at the Olympics had qualified his loyalty by supplying equipment and training to the Russians.
As for the two activities that do not enhance a resume, even if they barely pass muster: First, the PCAOB on January 30 punted its extended deadline for comments on the proposal to identify audit engagement partners – an idea of such long gestation and so little substance that its potential usefulness is inverse to the time of its exposure.
And second on the “D” list, the PCAOB remains mired without progress on its small-change proposal to amend the standard auditor’s report, to include among other things the requirement for disclosure of “critical audit matters.” Never mind the overwhelmingly negative reactions in over four hundred comment letters on the concept release and proposed rule. Issuers, users and the profession alike have submitted the dual messages that any expanded disclosure should come from management and audit committees, and that the PCAOB’s proposal would only generate more unhelpful boilerplate and a minimum of user-friendly information.
Last and still open is the question what to make of PCAOB chairman Doty’s bravura assertion before the SEC, in his remarks but not in his published speech, that, “Based on recent discussions, I am also optimistic that we will be able, during 2014, to sign a long-sought agreement to inspect the audit work of PCAOB-registered firms based in China.”
There may be those so beguiled by Doty’s melodious Texas accent and handsome career gravitas as to believe that this remarkable hostage to fortune amounts to credible likelihood of PCAOB inspection of audit firms in China. They are entitled to their views -- and the maneuvering after the SEC Administrative Law Judge’s enforcement order of January 22 against the Chinese firms of the Big Four for failure to produce subpoenaed documents is at least not inconsistent.
But over a decade into the PCAOB’s shut-out from China, Chairman Doty’s actual record of diplomatic accomplishment – contrasted with the bravado of his speech in the friendliest possible home-court setting – deservedly recalls Winston Churchill’s description of Clement Attlee, as “a sheep in sheep’s clothing.”
This is especially true as Doty heads into his fourth year as agency chairman – a tenure not exceeded by any of his predecessors – making it a good prediction that he will be either gone or going by the time of next year’s SEC budget party, leaving his successor to hold the poisoned chalice of a still-pending Chinese impasse.
And that’s especially the case, when recalling that the Chinese approach to negotiations – reflected in Zhou Enlai’s long-view perspective as to the impact of the French Revolution – “too early to say” – is measured not in the tenure of American functionaries but over eras of celestial duration.
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