Rumack: “Can you fly this plane and land it?”
Striker: “Surely you can’t be serious.”
Rumack: “I am serious … and don’t call me Shirley.”
- “Airplane” (1980)
Which is that,
although the large accounting firms may well not survive the wounds of their
own exposures (see Francine McKenna’s March 23 compilation), they
are in no present danger from their American regulator.
It is not clear, because
neither auditors nor their overseers are recognized for their humor or their irony,
whether it is cause for laughter, or perhaps tears, that the functionaries in Washington have so little respect for the profession, as
to believe it useful to “remind auditors of public companies about …the risk
…posed by significant unusual transactions.”
Behind the text of
the alert – which offers not a single example or illustration to suggest that
the PCAOB itself has a clue – is another “reminder,” for anyone still thinking that
government-provided audit guidance might supplant private assurance, in the
event of Big Four disintegration and collapse: The PCAOB shows itself ill equipped
to lead from Point A to Point B.
It was never
credible, that the very government that imposes on its citizens the Postal
Service, Fannie Mae and the IRS should be capable of delivering assurance of any
value on the complexity of global-scale corporate financial statements.
The PCAOB’s insult
to intelligence now makes that crystal clear. The best advice on offer – eight
years after the Sarbanes/Oxley law begat the PCAOB and a regulatory regime for
which the world was not holding its breath – is the stunningly obvious
proclamation (page 2) that “although the economic conditions have changed since
December 2008, the risk factors, including the risks of unusual transactions,
that existed in December 2008 continue to exist today….”
Whew – thanks for
that insight, for sure.
Justification for an
alert is said to be the highlighting of “new, emerging, or otherwise noteworthy
circumstances.” By its own terms the alert fails on the first two, so the
question is what might be “noteworthy” (page 2) about “compiling selected,
relevant requirements from existing PCAOB standards … into one document.”
Does the PCAOB
believe that audit professionals cannot read their basic literature, without
their attention failing or their lips getting tired?
With expectations
that low, where do they expect the professional wisdom and judgment be found,
in an audit engagement team out on the job, to comprehend the subtleties of
whether “the form of transactions is overly
complex” (page 5) or if “management is placing more emphasis on the need for a particular accounting treatment
than on the underlying economics of the transaction”? (page 6, emphasis
added)
If so, the next expected
step in the dumbing-down of regulation will be “GAAS for Twitter” – auditing such
tough subjects as related parties and special-purpose-entities and complex
derivatives, 140 characters at a time. Not, we should fear, a recipe for
enhancing the value of the audit process.
Further, one
seriously nasty hostage to politics in the PCAOB release is the admonition to
engagement teams to “consult with individuals having appropriate levels of
knowledge, competence, and judgment regarding significant unusual
transactions.”
Not only does that
finger-waving come with the warning that “the engagement quality reviewer
cannot provide concurring approval of issuance if he or she is aware of a
significant engagement deficiency, including those regarding significant
unusual transactions.”
More importantly,
as noted here, the PCAOB’s minders at the SEC in December besmirched an entire senior consultation
hierarchy at Ernst & Young, announcing enforcement sanctions against the
firm and six of its partners over the quality and risk review process followed
for Bally Total Fitness – a shot
across the bow of professional quality consultation that cannot be encouraging
to the kind of consultative practices now urged by the PCAOB.
Regulatory
“reminders” at the PCAOB’s elementary level may be an inevitable nuisance in a
nanny-state environment of excessive bureaucratic intrusion, but their real
impact will be a further degrading of the agency’s own stature and credibility.
At this rate, the PCAOB’s
next release will be a “reminder” that debits must still equal credits.
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