William McDonough -- president of the New York Federal Reserve Bank (1993 - 2003) and first chairman of the Public Company Accounting Oversight Board (2003 - 2005) -- died on January 22, age 83.
As a regulator he had more success with the banks than with the auditors.
In New York, he saw off the impacts of the Asian credit crisis and the bankruptcy of Long Term Capital Management, and steered the bank through the aftermath of the attacks of September 11, 2001.
In Washington, he oversaw the launch of the PCAOB under the mandate of the Sarbanes/Oxley law of 2002 – the intent of which, as put in its Board’s statement on his passing, was “to restore confidence in public accounting of American corporations.”
The success of that mission will not be debated here. Rather, for my views, see the discussions on my blog, Re:Balance, of the PCAOB’s performance in connection with, e.g., mandatory auditor rotation, independence and scope of service constraints, inspections and enforcement of auditors in China, the naming of lead partners, the incidence of audit deficiencies as observed by regulators, and extended auditors reports – along with comprehensive discussion in my book, “Count Down: The Past, Present and Uncertain Future of the Big Four Accounting Firms” (Emerald Books, 2nd edition 2017).
It is all too plain that the PCAOB and its regulatory off-spring spawned around the globe have not succeeded in quelling the periodic and repeated outbreak of large-scale financial disturbances – looking not only at the lengthy roster of failed financial and other institutions during the 2007 - 2008 financial crisis, but down through such recent examples as GE in the US, Carillion in the UK and Steinhoff in South Africa.
In this environment the public cry persists – “Where were the auditors?” – to which the measurable effectiveness and impact of the PCAOB remains as elusive as ever.
McDonough himself had the candor to concede -- when asked by a reporter in 2005 what he and his brethren would do in the event of another collapse on the scale of Enron’s fatal impact on Arthur Andersen -- that, “None of us has a clue what to do if one of the Big Four failed.”
The hazards that threaten the survival of the large accounting firms remain as grave as ever. Mr. McDonough’s terse response hangs in the air – a legacy weighty, ominous and unrebutted.
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Can you focus on the current independence issues.
Posted by: Michael Corcoran | January 26, 2018 at 08:18 PM
Thanks Michael. The entire independence structure is under challenge these days from two directions -- the large firms' pell-mell growth into what is now labelled Advisory, and the issues of limited choice among the Big Four as exemplified by the criticism of PwC's engagement in the Carillion liquidation in the UK. While waiting for the dust to settle, my extended treatment is in my book, "Count Down" - see http://amzn.to/2rFeA7m
Posted by: Jim Peterson | January 27, 2018 at 10:50 AM