“You don’t want to hear from us, since nothing good is going to come out of it.”
If those sound like fightin’ words, they are. They were spoken by Jay D. Hanson, one of five members leading the Public Company Accounting Oversight Board (PCAOB), www.pcaobus.org, affectionately referred to in corporate circles as “Peek-a-Boo.” Like in “Peek-a-boo, I see you.”
Hanson spoke recently to an almost standing-room-only crowd at a half-day conference for audit committee members and CFOs of publicly traded companies, sponsored by PondelWilkinson in conjunction with the University of California, Irvine.
The PCAOB was established by Congress in 2002, following passage of the Sarbanes-Oxley Act (SOX), to oversee audits of public companies. SOX required that auditors of U.S. public companies be subject to external and independent oversight for the first time in history. Previously, the profession was self-regulated. The Board was created in response to the increasing number of accounting “restatements” (corrections of past financial statements) by public companies during the 1990s, plus the high profile accounting scandals and record-setting bankruptcies by large public companies, notably those in 2002 involving WorldCom and Enron.
“We cannot put people in jail, but we can end careers. We often ask candid questions that make executives squirm.” Hanson said. “Our focus is on internal controls. The most prevalent problems involve guidance, revenue recognition and fair value issues. It is surprising how many CEOs admit they have taken their eye off the ball when it comes to these matters.
“Particularly for small and medium-size companies, being on an audit committee is the hardest job in the boardroom today. Members increasingly are being targeted for lawsuits. And don’t forget cyber threats, as we all see more regularly on the news, impacting millions of people,” Hanson added, seemingly out of context as a thought he did not want to forget to convey. He duly noted that CFOs and audit committee members can also be seen as responsible for such maladies as well.
The Board’s mission is to protect the interests of investors and further the public interest in the preparation of informative, accurate and independent audit reports. It also oversees the audits of broker-dealers, including compliance reports filed pursuant to federal securities laws, to promote investor protection. All PCAOB rules and standards must be approved by the U.S. Securities and Exchange Commission, and although the Board has no authority over public companies, PCAOB work has wide implications for public companies and their audit committees.
Hanson’s parting advice: “Go beyond minimal requirements and make good use of these three verbs: explain, clarify and disclose.”
Other sponsors of the conference included independent auditing firm Squar Milner; law firm Paul Hastings; financial printer RR Donnelley; and insurance brokerage AON.
— Roger Pondel, firstname.lastname@example.org