So says the psalmist. He might just as well have been writing about the accounting profession.
Blinded and deafened by their own commercial interests -- not least, a desire to land plush consulting contracts -- accounting firms in recent years all too often ignored evidence of the financial mischief and fraud that brought on the shocking wave of corporate scandals, from Adelphia Communications to Enron to HealthSouth.
In response, Congress fashioned the Sarbanes-Oxley Act, mandating a series of corporate reforms. The centerpiece of this landmark legislation is the Public Company Accounting Oversight Board, which, as Contributor Andrew Osterland reports in this month’s cover story, “Who’s Afraid of Sarbanes-Oxley?” (page 60), is just now beginning to flex its ample muscles under William McDonough, a former president of the Federal Reserve Bank of New York.
Companies and accounting firms are girding for much more energized oversight of the auditing world. This month, for the first time, dozens of auditors from PCAOB -- known to the corporate world as “Peekaboo” -- headed out of the new agency’s doors to begin their examinations of the top eight accounting firms, whose clients include the country’s biggest companies. These auditors’ auditors will be checking to be sure that firms are scrutinizing the companies closely enough, right down to deciding whether their internal controls are sufficient.
“The PCAOB isn’t a cure-all for financial fraud. But if it forces the auditors to focus on their primary responsibilities -- namely, quality audits -- it will go a long way toward improving the reliability of financial information,” says Osterland.
McDonough, who is taking an expansive view of his new role, won’t be a pushover. The onetime CFO of big Midwestern bank First Chicago Corp., which is now part of J.P. Morgan Chase & Co., has excoriated America’s CEOs for their exorbitant pay. But he is also an old hand at getting fractious executives to work together, having spent years overseeing the analysis and negotiations that led to the formulation of the new global standards for bank capital adequacy, known as Basel II, while at the New York Fed.
New agencies charged with overseeing corporate activities are rarely a welcome sight. This one was long overdue.
