Auditing

PCAOB Chairman Mark Olson to Retire

Olson will leave the accounting-firm overseer in mid-July after three years of dodging criticism over the PCAOB's first stab at an internal-control...
Sarah JohnsonJune 8, 2009

Mark Olson, chairman of the Public Company Accounting Oversight Board, will retire after three years at the helm of the fledgling regulator.

Olson joined the accounting-firm overseer in July 2006, around the time the non-governmental entity had begun reworking its controversial internal-control rule that auditors must follow when they do their Sarbanes-Oxley attestations for corporate clients.

The Securities and Exchange Commission, which oversees the PCAOB, appointed Olson to succeed the board’s second chairman, William McDonough. Under Olson’s tenure, the PCAOB has had to defend its existence amid questions about its constitutionality. It also had to settle into its relatively young status as a regulator, inspector, and standard-setter for the firms that review public companies’ financial statements.

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Later this year, the U.S. Supreme Court is scheduled to hear arguments in a separations-of-powers case brought against the PCAOB. The plaintiffs claim board appointments should be subject to government scrutiny beyond the SEC’s authority.

Olson’s appointment came four years after Sarbox — which mandated the establishment of the PCAOB — became law. He took the reigns, he told CFO.com, of an organization “going through a transition from a startup to more of a steady-state organization.” He counts high among his accomplishments several organizational changes, improvements in the board’s inspections, and a strengthening of its enforcement capability.

Still to go, he says, are more negotiations with PCAOB counterparts in European and Asian countries to get the right to fully inspect the audit firms based overseas that audit U.S. public companies. The PCAOB has run into resistance from other regulators. Olson also hopes Congress either passes or makes progress on legislation by the time he leaves office on July 31 that would enable the PCAOB to inspect and have enforcement rights over auditors of privately held brokers/dealers. 

Moreover, his successor may have to issue or amend guidelines as the fallout from the financial crisis plays out in the hands of retrospectively focused lawmakers. “Accounting and auditing standards have evolved over the years, but until you have the kind of financial crisis we’ve been through, they are not really fully tested,” Olson says. “They are being tested in a number of ways — to a lesser extent on the auditing side — but particularly on the accounting side, we are learning where there are strengths or weaknesses.”

As it is, in light of the credit crunch, the PCAOB has issued crisis-related guidance to keep auditors on high alert in their reviews of how firms have accounted for mortgage-backed securities. It is also looking into how auditors come up with their estimated prices of assets and liabilities under the fair-value accounting rules. Olson has expressed concerns over auditors’ ability to keep up with the technical know-how involved in looking over complex estimates for financial instruments that are thinly traded or not traded at all. “Auditors should be mindful that financial statement preparers can be biased — even if unknowingly so — in their assessments of fair value,” he has said.

To be sure, the regulatory environment is different now from the one Olson entered when he began at the PCAOB, which wrestled with the SEC amid pressure from lawmakers over how its Sarbox auditing standard should be reworked. At the beginning of his time as chairman, Olson heard a lot of grumbling from Congress about the overly costly burden the PCAOB and Sarbox was costing companies.

But those criticisms have died down a bit. “What that tells me is,” he says, is that there is an entirely different attitude toward the PCAOB and the role of standard-setters and regulators in general.”

Issued before Olson took over at the board, Auditing Standard No. 2 had caused confusion, misinterpretations, and costly audits. The SEC attempted to alleviate that by issuing guidance for management, while the PCAOB relaxed its rule through the issuance of AS5. That auditing standard clarified that auditors should audit the controls themselves, rather than management’s assessment process. Still, smaller companies have not yet had to get their auditors’ signoffs on their internal-control reviews; that awaits a cost-benefit study by the SEC.

Olson has also tussled with the SEC over the PCAOB’s budget and its budgeting process. In 2007, then commissioner Paul Atkins railed against Olson’s request for a 3.3% increase in the PCAOB’s budget, including a $21,000 raise that would give Olson $654,506 in annual pay, but approved it anyway.

Before joining the PCAOB, Olson had most recently served on the Board of the Governors of the Federal Reserve. He has also worked on the staff of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, which oversees the SEC. Further, He’s spent a significant part of his career in the private sector, including as an Ernst & Young partner and the chief executive of a Minnesota bank.

Olson says he had the right background to serve as chairman of the PCAOB, whose five-member board can have only two CPAs. “When the SEC contacted me about my interest, I just thought it would be worth doing,” he says.

In a short statement issued by the PCAOB today, the board said Olson wrote in his resignation letter that “the decision is entirely personal and reflects my desire at this time of life to establish new priorities.”

The PCAOB said Olson does not have any immediate plans for what he will do when he steps down other than to promote financial literacy. He told CFO.com that he wanted the SEC to have two months’ lead time to appoint his successor and picked mid-summer since Congress is often active leading up to its August break.

The SEC will begin its process for appointing Olson’s replacement soon. “Mark has been an effective steward of the PCAOB, and under his able leadership, the PCAOB has taken significant steps to improve auditor oversight,” SEC chairman Mary Schapiro said.