Professional Services Monitor: Today

According to the WSJ, the PCAOB is proposing a new rule for auditors, requiring them to file a disclosure when withdrawing approval from previously approved financial statements. This would be in effect a counterpart to the SOX rule requiring companies to file an 8K, item 4.02, when restating financials. The article says that in most cases, the PCAOB would make the information publicly available on its website. The article also notes a frustrating reality of the SEC: While companies are required to file the 8K upon restating financials, sometimes they do, sometimes they don’t. The PCAOB proposal is subject to approval by the SEC following a public comment period.
Currently there are few, if any, regulatory filings made by auditors on their own initiative regarding their audit clients.

Deloitte Insights Podcasts has released five new episodes since May 4, 2006. Subjects include tax reform in Texas, transfer pricing in the EU, and electronic records management.
The Blizzard Ahead: Preparing Your Business For the Coming Pandemic was particularly interesting. The podcast features Don Ainslie of Deloitte’s ERS practice and former Health & Human Services Secretary Tommy Thompson, who is now the independent chairman of Deloitte’s Center for Health Solutions. From the show notes:

Plan as if a blizzard were coming a blizzard that could last up to 18 months instead of a few days and that could disrupt travel, employee productivity, the product supply chain and business operations on a global scale. Listen and learn what businesses can do to prepare for a pandemic flu outbreak.

Deloitte continues to produce interesting and well-produced podcasts that share a conversation format that make them easy listening.

In a brief article dated 5/23/2006, BusinessWeek reports that President Bush has given John Negroponte, White House intelligence czar, authority to exempt companies from certain SEC reporting requirements for national security reasons. Ostensibly, the only news here is that the President has delegated this power for the first time; the office of the President has had this power since the Carter Administration. However, it seems safe to say that few people are aware this power exists at all. According to BusinessWeek, this authority comes from Section 13(b)(3)(A) of the Securities Exchange Act of 1934:

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Jack Ciesielski on the The AAO Weblog has succinct summary the decision’s reached by the SEC on changes to 404 regulations.

Today, the Commission released its plan and as is usually the case in things political, it’s a compromise: pretty much down the middle. With a big dollop of additional rule-making.

Ciesielski touches on the SEC’s plan on Auditing Standard No. 2, SEC oversight on PCAOB inspections of audit firms, and the outcome of 404 requirements for small-cap companies.

• Extension of Compliance for Non-Accelerated Filers. What’s the next best thing to a waiver of 404 reporting for smaller firms? A delay. Again.

Non-accelerated filers will have until years beginning after December 16, 2006 to implement Section 404 rules. Currently, they’d have to comply in the first year ending after July 15, 2006 to comply. This will make a 404 report on internal control on non-accelerated calendar year filers first show up in 2008, on the internal controls in effect at the end of 2007.

It only makes sense that small companies should be subject to the same financial-statements quality rules by which that larger companies must abide. If SOX 404 provides investors with greater assurance and clarity of what’s going on within a company’s financial management, then 404 should give this protection to all investors of public companies.
Ciesielski has more many more details on 404 Relaxation: The SEC Opens Up

On May 15, Ames Research Group released its latest Big Four Quarterly Competitive Summary, covering auditor change and M&A activity between Q2 2005 and and Q1 2006. Some key findings from this report include Ernst & Young’s resurgence in winning percentage. For the first time in nearly four years, E&Y led the Big Four in engagements won as a percentage of invitations to propose. Deloitte had led the Big Four in this performance metric in the previous six quarterly reports. Deloitte continues to narrow its net loss in audit clients. However, no Big Four firm has had a net positive gain in clients since the four quarters up through Q3 2002. That period of time also happen to include the bulk of Andersen-collapse induced activity.
On a positive note, a surprisingly large and consistent number of company executives interviewed for this study cited Deloitte’s value-for-fees as a reason for engaging that firm in the past four quarters. The Big Four has been blasted by mid-market companies for steep fees increases, particularly following the SOX 404 requirements. To have companies actually applauding a Big Four firm for providing value for fees is a positive development.

The Big Four Quarterly Competitive Summary examines public company auditor changes, certain M&A events, and significant private company auditor changes on a rolling basis, covering the most recent previous four quarters. In addition to studying asking the basic question of who won and who lost, ARGI’s QCS asks why the winner won and the loser lost, and what other firms were invited to propose on an engagement. The result is a detailed strategic tool for evaluating a firm’s strengths and weaknesses in winning new business. For more information on Big Four Quarterly Competitive Summary, please contact your firm’s competitive intelligence unit.