The finance executives new to the standards group for the overseer of auditors are looking forward to representing their point of view to the fledgling board next year.
The Public Company Accounting Oversight Board announced last week who will serve 2007-2008 tenures on its Standing Advisory Group. The members have backgrounds in accounting, auditing, corporate finance, and corporate governance.
“I think they have a very tough job and they’re going about it in a very professional way,” W.R. Grace senior vice president and CFO Robert Tarola tells CFO.com. “My interest in joining the Standing Advisory Group was to provide a perspective of a public company CFO who is a certifying officer under the Sarbanes-Oxley Act so that they have the benefit of that perspective in making their decisions.”
Tarola, along with the other new members, will begin his term in January 2007. He pursued the role and was supported by nominations from Legg Mason Mutual Funds and the Maryland Association of CPAs’ board of directors. The PCAOB received more than 110 nominations and re-nominations after soliciting for the empty board slots in May. Other finance executives appointed to the group include Arnold Hanish, chief accounting officer of Eli Lilly and Co.; Howard J. Johnson, retired vice president of internal audit for Lowe’s Cos.; David Julian, chief operating officer for finance at Wachovia Corp.; and John Morrissey, operating controller of General Electric. Current member Craig Omtvedt, senior vice president and CFO of Fortune Brands, will end his two-year term at the end of next year.
The fairly new board been working under the watchful eye of Congress and the marketplace, Julian says. Because the PCAOB now regulates an industry that once regulated itself, he says, it is also in a difficult position of seeming overly intrusive. “I think over time they’re going to find the right balance,” he adds. “The Standing Advisory Group can help them do that.”
Made up of 31 members, the group was created in 2004 to draft the PCAOB’s standards and provide a checks-and-balances role by providing advice on priorities and policy implications of existing and proposed standards.
Earlier this month, the board’s chair, PCAOB chief auditor Thomas Ray, announced that revising Auditing Standard No. 2 is the board’s highest priority for 2007, along with setting a requirement for engagement quality review, reviewing principles of reporting (to match the Financial Accounting Standards Board’s Statement No. 154), and reevaluating the auditor’s risk assessment process.
The number of priorities seem doable, says Johnson, who retired from his role at Lowe’s earlier this year. New to the group, Johnson did not want to comment specifically on the list of ideas on the PCAOB’s plate, but says focusing on a small number of issues at one time is best. “If you go overboard, that’s almost as bad as not doing anything,” he says. “You need to strike the right balance.”
Johnson jokes that he plans to act like a sponge during the first few six months of his tenure to get acclimated to the PCAOB. The Standing Advisory Group meets approximately three times a year.
The PCAOB’s existence is “appropriate at this time,” says Johnson, who was nominated to his post by the Institute of Internal Auditors, which he formerly chaired. He praised the fact that the PCAOB came forward with guidance around the same time as its overseer, the Securities and Exchange Commission, calling for auditors to keep an eye out for the backdating of stock options.
Wachovia’s Julian, who was encouraged by the American Bankers Association to join the group, is looking forward to sharing his experience as a former corporate controller who will take over Wachovia’s chief auditor position in 2007 when Peter Schild retires. As an outside observer of the PCAOB, he believes the board’s creation has helped create trust in the marketplace and consistency within the auditing profession. “This is an opportunity to get involved with the PCAOB, certainly, and a way to help make sure they understand the downstream impact of the decisions they make,” he says. “I commend them for looking for that input.”
The new members to the PCAOB’s standards group believe in participating in boards outside their job to get their voices heard. Johnson continues to be involved in the IIA through its board of trustees, and Tarola serves on the University of Denver’s Accountancy Advisory Board and the American Institute of Certified Public Accountants’ Assurance Services Executive Committee. “There’s no doubt that the CPA organizations need more CFOs to be more directly involved and provide their perspective,” Tarola says.