Monday March 2 2020
Often the letters section in the WSJ contains some interesting comment of a previous editorial. Last week we noted the Trump administration suggested the SEC 'absorb' the PCAOB. This is typical top of the market thinking, regulations are repealed at market tops. In this case the repeal idea virtually timed with the 29,548 new high. Here are comments about Arthur Levitt's op ed on the topic
Notice the last letter claims auditors abide by the toughest independent rules of any profession. Well the problems crop up when they don't, hello Arthur Andersen and Enron and the whole Lehman sub prime mortgage mess.
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Former Securities and Exchange Commission Chairman Arthur Levitt ignores the failure of the SEC, the Public Company Accounting Oversight Board (PCAOB) and my profession (CPAs) in the last financial crisis ("Without an Independent Watchdog, Who Will Audit the Auditors?," op-ed, Feb. 20). The mandatory finger of blame never points inward.
There is a principle of "substance over form" that was supposed to be applied by all the watchdogs, who readily stayed in their respective dog houses. Junk bonds are a useful mechanism in the market, as long as you call them junk. If a collateralized mortgage obligation (CMO) includes a majority of borrowers with a FICO score of two and have unverified income, that sounds like junk to me even with a purchase rating of triple-A. And if they were "insured" with a credit default swap that really wasn't insurance (inadequate reserves to cover potential losses), it was obvious to me that appropriate reserves should have been required (50%, 85% or 100%) to carry these fallacious assets. How many of these CMOs would have been sold if the purchaser could only have them on their books at 15% of their purchase price? I suspect very few, and the accumulation of those garbage loans would have died on the vine.
Technically, all the "loans" were legal, but if the watchdogs had done their jobs, the market would have corrected itself. The critical responsibility of the accounting profession and the SEC is the proper application and valuation of all accounting principles to insure market stability. I blame the SEC and the accounting profession for looking the other way. More bureaucratic oversight wouldn't have been needed if Mr. Levitt's successors had only done their jobs.
Dan Webb
Reno, Nev.
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Mr. Levitt suggests that the semi-independent PCAOB is preferable to the SEC absorbing the board. The inherent conflicts noted by Mr. Levitt remain under either arrangement.
A significantly better (honest and ethical without conflicts of interest) arrangement is to have truly independent auditors. All we need is the major pension plans and institutional holders to insist that any organization in which they hold stock be audited periodically by a truly independent auditor. Most of the periodic scandals to which the Big Four subject stakeholders would disappear.
Em. Prof. J.H. Heizer
Texas Lutheran University
Camp Verde, Texas
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Auditors abide by the stiffest, most comprehensive independence rules of any job in the private, public or nonprofit sectors. Instead of attacking them, Mr. Levitt's advocacy for the PCAOB would be more credible if he explained what has been achieved during its 18-year tenure. Maybe what's really needed is an audit of the auditors' auditor.
Edward Abahoonie
Sparkill, N.Y.
Professor Elam 
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