Thursday Feb 20 2020

Arthur Levitt, former SEC Comm. questions Trump Admin idea to eliminate the PCAOB.

As I have noted in socionomic presentations, the regulations come off at market tops, akka  29,000. the regulations go on

at market bottoms as in after the Enron Worldcom fiasco. SARBOX was passed 99-0 in the Senate after the Enron collapse. Accountants lost their right to self regulate. Instead the Public Company Accouniting Oversight Board PCAOB was created to be a watchdog on public audits. The PCAOB regularly sample public audiits and rates them.  Regularly the so called Big Four as Arthur puts it fail these tests.

This should be a topic of lively debate in the profession.

full text of article

The Trump administration is calling for the Securities and Exchange Commission to absorb the independent Public Company Accounting Oversight Board. The president's budget proposal says this would reduce duplication of function and regulatory ambiguity.

Yet sometimes the government we seek to erase exists for a very good reason — we just have to recall why it's there.

The PCAOB was established by law through the Sarbanes-Oxley Act of 2002. Sarbanes-Oxley passed the Senate 99-0 and the House by 423-3 in the wake of accounting-related scandals, including Enron and WorldCom, that led to trillions of dollars of investor losses and the bankruptcy of a once-venerated auditor, Arthur Andersen LLP.

With the trauma of fraud and the burst dot-com bubble fresh in their minds, legislators and the Bush administration sought to draw up regulations for the previously self-regulating audit profession. One result was the PCAOB, a nonprofit organization, which reports to the SEC but is otherwise independent. It conducts regular oversight of auditors, the ones who are supposed to conduct oversight of public companies. Why do auditors need auditing? Because auditors make mistakes — some of commission and some of omission. Auditors can be sloppy. Auditors can be gullible.

Auditors, in short, are not all-knowing. More critically, they often work for larger organizations that sell other professional services, such as advisory, tax and information-technology work. The so-called Big Four auditors — Deloitte, PricewaterhouseCoopers, Ernst & Young, and KPMG — all boast significant non-auditing business, which are growing sources of growth and profit, and a majority of revenue.

By comparison, auditing is a prosaic, slow-growing business. The result is an imbalance of power within the firms: Audits may be how they're best known, but other services are more important to their business. What, therefore, is to prevent an auditor from softening a judgment on a company's questionable accounting practices if the client is dangling non-audit work? The incentives create a conflict between the interests of the auditor and those of investors.

When I was chairman of the SEC in the 1990s, I called attention to this problem. Auditors, I argued before the dot-com bubble burst and the Enron and WorldCom scandals emerged, are critical to the trust that is at the heart of our financial system. "Sound and verifiable financial reporting is to financial markets what oxygen is to breathing," I said in a Senate hearing on auditor independence in September 2000. That's why Congress had long held public accountants responsible for upholding their independence — both in reality and in perception.

It's not enough to be independent of other considerations in performing the audit. Investors must also have confidence in that independence. The auditing profession's failure to meet that expectation in the late 1990s is why the PCAOB was created.

That is not to say the PCAOB's work has been spotless. Critics say, with some merit, that the board could be far tougher. Fines are relatively minor, and auditors rarely pay the most unpleasant price — bad publicity — when they do a sloppy job. In addition, from the beginning, the SEC's nominations to the PCAOB and supervision of the board's performance under Sarbanes-Oxley has fallen short when it comes to objectivity, independence and improving audit quality.

But the PCAOB is, on balance, a very good thing. Consider the attention auditors pay to quality-control reports issued regularly by the PCAOB. When the board pegs an audit firm in a quality report, it's usually because of significant and serious concerns about accuracy and effectiveness. The result is a thorough review of the engagement, the lead partners and whether audit processes followed standards or deviated from them. Audit firms take these matters seriously, as they should.

Abandoning the PCAOB would disrupt investors and markets. It would likely undermine confidence in the audit profession itself. After all, the PCAOB is primarily funded through an "accounting support fee" on public companies and brokers, and there has not been an investor organization I know of that has called for the PCAOB to be abolished.

Would the SEC be able to command the same respect as the board? No. The commission's mandate is already full, and to meet the expectations set for the PCAOB would require an expansion of staff and expertise not currently funded by the Trump administration's budget proposal.

This is an unserious proposal, and I urge Congress to reject it and thereby affirm that the PCAOB plays a vital role in our financial-market regulatory structure. We know what happens when we ignore the importance of auditor independence because we've seen it. No one wants to see it again.

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Mr. Levitt was chairman of the Securities and Exchange Commission, 1993-2001.

Wed Feb 19 2020

A San Antonio Dr was found guilty of a $325 M fraud for false diagnosis.

Do you suppose this 63 year old just began a crime spree at this age, or a few years back?  Of has he been working up to this over the years?