Playing Catch Up
Last Friday, the Public Company Accounting Oversight Board (PCAOB) came out with the warning that auditors should be on the lookout for potential stock options backdating abuses:
WASHINGTON (Dow Jones/AP) — The Public Company Accounting Oversight Board on Friday issued its first-ever “audit practice alert,” warning auditors to be on the lookout for problems in the timing and accounting of stock-option grants.
“Auditors planning or performing an audit should be alert to the risk that the issuer may not have properly accounted for stock options, and as a result, may have materially misstated its financial statements,” the alert cautioned. It told auditors to assess such risks in the course of an audit and use professional judgment in deciding whether additional scrutiny is warranted.
The oversight board’s alert comes on the heels of Securities and Exchange Commission rules approved Wednesday intended to crack down on backdating and other abuses in granting executive stock options.
Huh? Can someone please tell me what’s new here? Isn’t this what auditors are supposed to do in the first place - that is, uh, audit? Stock option terms and policies would seem to be right in the sweet spot of their perview. “It (PCAOB) told auditors to assess such risks in the course of an audit and use professional judgment in deciding whether additional scrutiny is warranted.” What? Use professional judgement? Now I believe a clear, robust public accounting system is critical for the integrity of the financial markets, and also believe that a group like PCAOB has an important place in this process, but these pronouncements are truly embarrassing. It basically sends the message that all that money spent on audit services - and let me tell you firsthand that these services are not cheap - yields questionable results and doesn’t serve those for whom it was designed, namely, the public. That such language is used implies to me that the “profession” of public accounting has truly lost its luster, and that the integrity and objectivity which is the supposed currency of the trade has depreciated markedly.
As noted in a previous post, I believe those in the position of responsibility on which others rely, i.e., fiduciaries such as pension funds, accountants, lawyers, etc., must be held accountable for their actions (or their lack of action as the case may be). Once the integrity of these players falls into question, the underpinnings of the marketplace they are supposed to serve weakens considerably. My hope is that “bold” pronouncements like those made by the PCAOB on Friday are few and far between, because if fundamental issues like those discussed above require comment a wholesale review of the public accounting profession may be in order.
