In remarks before the Boston FEI chapter last night, PCAOB founder and board member Bill Gradison shed a bit — and only a bit — of light on the high percentage of audit quality problems among the Big Four firms that my colleague Tim estimated in a previous blog. He confirmed (as one of our savvy readers pointed out) that the PCAOB takes a risk-based approach to auditing, so that "if we do our job right, we probably do come up with a higher percentage [of problems] than if we just took a random sample."
A courtly white-haired gentleman, Gradison politely reckoned Tim's 25% estimate too high. But of course he couldn't say what the actual rate was, since the PCAOB doesn't reveal the number of inspections it does at very large firms (even though it does for smaller ones).
Why? Gradison didn't answer that one directly in his remarks. But elevation through obfuscation seems to be the name of the game. Noting that the PCAOB considers itself a supervisory body rather than an enforcement ogre, he said the mission of the agency is to work with firms to restore "integrity" and even "luster" to the profession. That means it prefers giving audit firms a 12-month grace period to quietly fix problems rather than make them public when they happen, since "reputation is so important in a field like auditing." Mmm. I bet CFOs who have had the SEC and DOJ jump all over them (especially those who have later been exonerated) wouldn't mind a little of that forbearance.
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