Homepage / Currency / America’s Public Company Accounting Oversight Board gets a new boss
Amazon says this Prime Day was its biggest shopping event ever Kudlow says President Trump is 'so dissatisfied' with China trade talks that he is keeping the pressure on As stocks regain their footing, an ominous warning looms Goldman Sachs downgrades Clorox to sell, says valuation is 'unsustainably high' How Satya Nadella has spurred a tripling of Microsoft's stock price in just over four years Kudlow says economic growth could top 4% for 'a quarter or two,' more tax cuts could be coming The one chart that explains Netflix’s stunning comeback US housing starts plunge 12% in June to a nine-month low Aerospace titans Boeing and Airbus top $110 billion in orders at Farnborough Target uses Prime Day to its advantage, logging its 'biggest online shopping day' so far this year Billionaire Marc Lasry sees bitcoin reaching up to $40,000 as it becomes more mainstream and easier to trade These are the 10 US airports where you're most likely to be hacked Amazon shares slightly higher as investors await Prime Day results Wreck of Russian warship found, believed to hold gold worth $130 billion A bullish ‘phenomenon’ in bond market is weeks away from fading, top credit strategist says Stocks making the biggest moves premarket: MS, GOOGL, TXN, UAL, NFLX & more Twitter shares up 50% since late April means most upside priced in, analyst says in downgrade EU fines Google $5 billion over Android antitrust abuse Mortgage applications fall 2.5% as buyers struggle to find affordable homes America may not have the tools to counter the next financial crisis, warn Bernanke, Geithner and Paulson Investors are getting spooked as the risk of a no-deal Brexit rises EU expected to fine Google $5 billion over Android antitrust abuse Ex-FBI chief James Comey urges Americans to vote for Democrats in midterm elections Elon Musk apologizes to British cave diver following baseless 'pedo guy' claim Disney, Comcast and Fox: All you need to know about one of the biggest media battles ever Xiaomi shares notch new high after Hong Kong, mainland China stock exchanges reach agreement The trade war is complicating China's efforts to fix its economy European markets set for a strong open amid earnings; Google in focus Hedge fund billionaire Einhorn places sixth in major poker tournament The biggest spender of political ads on Facebook? President Trump Asian stocks poised to gain after Fed's Powell gives upbeat comments; dollar firmer Stocks are setting up to break to new highs Not all FAANG stocks are created equal EU ruling may be too little, too late to stop Google's mobile dominance Cramer explains how Netflix's stock managed to taper its drop after disappointing on earnings Airbnb condemns New York City's 'bellhop politics,' threatens legal retaliation Amazon sellers say they were unfairly suspended right before Prime Day, and now have two bad choices Investor explains why 'duller' tech stocks can have better returns than 'high-flying' tech names Elon Musk is 'thin-skinned and short-tempered,' says tech VC Texas Instruments CEO Brian Crutcher resigns for violating code of conduct Google Cloud Platform fixes issues that took down Spotify, Snapchat and other popular sites Uber exec: We want to become the 'one stop' transportation app 'What a dumb hearing,' says Democrat as Congress grills tech companies on conservative bias Amazon shares rebound, report says Prime Day sales jumped 89 percent in first 12 hours of the event How to put your medical history on your iPhone in less than 5 minutes Investment chief: Watch these two big events in 2018 Even with Netflix slowing, the market rally is likely not over Cramer: Netflix subscriber weakness debunks the 'sky's the limit' theory on the stock Netflix is looking at watch time as a new area of growth, but the competition is stiff Why Nobel laureate Richard Thaler follows Warren Buffett's advice to avoid bitcoin Rolls-Royce is developing tiny 'cockroach' robots to crawl in and fix airplane engines After Netflix plunge, Wall Street analysts forecast just tame returns ahead for the once high-flying FANG group Roku shares rise after analyst raises streaming video company's price target due to customer growth China is investing 9 times more into Europe than into North America, report reveals Amazon says US Prime Day sales 'so far bigger than ever' as glitch is resolved Netflix is on pace for its worst day in two years US lumber producers see huge opportunity, rush to expand San Francisco to consider tax on companies to help homeless Homebuilder sentiment, still high, stalls as tariffs, labor and land drive up costs Powell backs more rate hikes as economy growing 'considerably stronger' Netflix history is filled with big stock declines – like today – followed by bigger rebounds Intel shares get downgraded by Evercore ISI due to rising competition from Nvidia, AMD Petco aims to reinvent the pet store with something you can't buy online Genetic testing is coming of age, but for consumers it's buyer beware Tech 'FAANG' was the most-crowded trade in the world heading into the Netflix implosion, survey shows Netflix weak subscriber growth may indicate a 'maturity wall' that could whack the stock even more: Analyst This chart may be predicting the bull market's demise Wall Street says Netflix's stock plunge is a ‘compelling’ buying opportunity because the streaming giant ‘never misses twice’ Tesla sinks after Musk tweets, again Boeing announces new division devoted to flying taxis Stocks making the biggest move premarket: NFLX, UNH, GS, AMZN, WMT & more Deutsche Bank downgrades Netflix, but says big subscriber miss is not 'thesis changing' IBM is experimenting with a cryptocurrency that’s pegged to the US dollar North Korea and Zimbabwe: A friendship explained Virgin Galactic spinoff Orbit to launch rockets from the UK with space deal Artificial intelligence will create more jobs than it destroys? That’s what PwC says ‘Treasonous’ Trump and ‘Putin’s poodle:' Scathing headlines follow the Trump-Putin summit China’s fintech companies offer ‘enormous’ opportunity, investment manager says Trump's performance at summit with Putin was 'unprecedented,' experts say Walmart and Microsoft link up on cloud technology as they both battle Amazon European stocks seen mixed amid earnings; Fed’s Powell to address Congress How I knew I should quit my day job and run my start-up full-time: Viral website founder China's stocks have been trounced, but the trade war may ultimately be good news for those shares Billionaire tech investor Peter Thiel bets on crypto start-up Block.one Asian shares subdued open after mixed close on Wall Street; energy stocks under pressure Amazon cloud hits snags after Amazon Prime Day downtime Netflix isn't doomed by one quarter unless people start questioning the long-term investor thesis Tech stocks set to sink on Tuesday after rough evening for ‘FANG’ Netflix plummets after missing big on subscriber growth This wristband lets humans control machines with their minds The U.S. has a rocky history convincing Russia to extradite computer criminals Amazon suffers glitches at the start of Prime Day Jeff Bezos is now the richest man in modern history 'The United States has been foolish': Read Trump and Putin's full exchange Goldman Sachs recommends these 5 highly profitable companies — including Nvidia — to combat rising inflation Goldman Sachs releases 'tactical' stock picks for this earnings season Three red flags for Netflix ahead of its earnings report The bond market may be raising recession fears, but don't expect one anytime soon Cramer: Banks are 'making fortunes' but are still as hated as they were during the financial crisis Putin told Trump at summit: Russia never meddled in US election


America’s Public Company Accounting Oversight Board gets a new boss

THE collapses of Enron and WorldCom in the early years of this century turned book-cooking into front-page news. Investors lost over $200bn; in 2002 the stockmarket fell by over a fifth between April and July. In response, America’s Sarbanes-Oxley Act set up a new body, the Public Company Accounting Oversight Board (PCAOB), to supervise auditors.

Its quest to give auditors more teeth continues, with the introduction of new rules that James Doty, its outgoing chairman, bills as the most significant changes to reporting by auditors in over 70 years. The question now is whether Mr Doty’s successor, who was announced by the Securities and Exchange Commission (SEC) on December 12th along with four new PCAOB board members, will keep heading in the same direction.

  • What is it about “Cat Person”?

  • Retail sales, producer prices, wages and exchange rates

  • Foreign reserves

  • “The Last Jedi” tears down—and rebuilds—the Star Wars franchise

  • Why Turkey and Greece cannot reconcile

  • When politicians and executives get caught out

New disclosures on auditors’ tenure and independence take effect this week. And from 2019 auditors must go above and beyond the low bar they have historically set themselves, which is a pass or fail “opinion” on whether financial statements obey accounting rules. They will have to explain “critical audit matters”, meaning occasions when they had to confront company management. Many big firms loathe these changes, warning that investors will be swamped by minutiae. Their real fear may be a loss of control over the flow of information to investors.

The rules are meant to mitigate the incentive problems that have long riddled the profession, which is dominated by the Big Four partnerships—Deloitte, EY, KPMG and PwC. To foster investor trust, listed firms must engage external auditors. But companies pay them, not investors, which may dampen the motivation to scrutinise.

In the West, stronger oversight does appear to have coincided with better quality. Accounting scandals are far from consigned to history’s ash heap. In America last year, for example, PwC settled a $5.5bn lawsuit alleging negligence when it gave Colonial Bank a clean bill of health in the years before the lender’s collapse in 2009; the bank turned out to have made loans against assets that did not even exist. Yet both the frequency and the severity of accounting restatements have fallen over time in America (see chart), and inspectors are finding fewer audit deficiencies. In Britain, where auditors have been required to discuss contentious bits of the audit for some years already, 81% of FTSE 350 audits inspected by regulators in 2016 either met their standards or had only minor problems, up from 56% five years before.

But two big weaknesses in the audit industry remain. First, at a global level, quality is still relatively low. A survey of 36 countries last year by the International Forum of Independent Audit Regulators found that an “unacceptably high” 42% of 855 audits did not meet inspectors’ standards. All of the Big Four have been caught up in scandals in recent years, particularly in emerging markets.

American regulators can lift standards. The PCAOB inspects audits for all firms listed in America, regardless of the auditor’s location (though China refuses its inspectors access). More of its sanctions have been taken against foreign firms, including affiliates of the Big Four. In its severest punishment ever, it fined Deloitte in Brazil $8m last year for doctoring paperwork and hiding evidence from inspectors.

Senior executives at the Big Four admit to embarrassment about violations abroad. But because most country firms are legally distinct affiliates, they have been able to avoid broad reputational damage. And the worry is that neither companies nor regulators can afford to discipline auditors harshly for their failings because of the second big flaw: limited competition. The Big Four dominate audit for large listed companies, scrutinising the accounts of 99% of those on the S&P 500 and the FTSE 100. Companies’ choices are even more limited because conflict-of-interest rules forbid the same firms from selling consulting and audit services. Over 85% of S&P 500 companies have been audited by the same firm for over ten years, according to Audit Analytics, a data provider. Such cosiness jeopardises objectivity.

How this should be addressed, if at all, is unclear. Mr Doty reckons independence of auditors must be the priority; if that is assured, a lack of competition, in itself, is less worrisome. In any case, the PCAOB has little scope to act, since the House of Representatives voted in 2013 to ban mandatory auditor rotation. In contrast, European regulators now require firms that have used the same auditor for ten years to put their contract out to tender. Nevertheless, the four remain dominant.

That concentration worries some. What happens if another scandal were to sink one of the firms, turning the Big Four into the Titanic Three? European regulators are now monitoring risks to audit firms; in Britain, audit-firm boards must include independent non-executive directors. Steven Harris, an outgoing PCAOB board member who helped to draft Sarbanes-Oxley, would like to see similar rules in America.

That seems unlikely, because of a new risk to audit quality: a possible relaxation of American policy. Many bosses hope for looser rules. That would fit with the Trump administration’s deregulation agenda. Although Sarbanes-Oxley has not ranked highly on the list of rule books to be burned, Mr Doty’s successor, William Duhnke, a former Republican Senate aide, is thought to favour deregulation. Two of the four other new board members are former Big Four auditors. Reassuringly, the SEC’s chair, Jay Clayton, has said he is not looking for radical change. He would be wise to consider how much progress has been made since the dark days of Enron and WorldCom before consigning audit regulation to the flames.

Source: economist
America’s Public Company Accounting Oversight Board gets a new boss

Comments are closed.