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PCAOB Bares Its Teeth

Location: Blogs AAO Weblog (Public)
Posted by: Jack Ciesielski	5/25/2005 6:51 AM
This just in from the Public Company Accounting Oversight Board: they mean business. Yesterday the PCAOB announced its first-ever "revocation of registration" of a firm - which means they cannot take on any audits of publicly-traded clients. One of its partners, Edward B. Morris, is barred from associating with a firm engaged in audits of publicly-traded companies. The firm in the PCAOB's cross-hairs: Goldstein and Morris, CPAs. Who? Goldstein and Morris, CPAs - possibly the only CPA firm in existence whose website is not yet complete. Observers and critics of the PCAOB will probably hoot at the punishment being meted out to such a tiny firm. After all, when one thinks of the PCAOB's task of policing the firms that audit the most significant publicly-traded firms, you think of the Big Four. Not Goldstein & Morris. But if you look at the facts, they got what they deserved, I think. Public accounting firms are not permitted to perform bookkeeping services of audit clients; they'd effectively be auditing their own work. (A possible lack of objectivity, no?) Goldstein & Morris performed such services for two audit clients - New York Film Works and RTG Ventures - in violation of auditing standards. When the firm was notified that they were going to be inspected by the PCAOB, how did they respond? They worked on a plan to conceal the information requested by the PCAOB: creating and backdating documents and inserting them into audit files before the inspectors reviewed them. (Hey, it worked for Martha Stewart, didn't it?) Two partners - Alan J. Goldberger and William A. Postelnik - resigned from the firm and informed the PCAOB of the deception. For their cooperation, they were censured by the PCAOB, a much more lenient treatment than was received by Morris. It would be foolish to argue that the PCAOB should exist only harangue Big Four firms. Can you argue that we're a lot better off with only four instead of five big firms with Arthur Andersen in extinction?) Face it: they're policemen. They're supposed to enforce the law wherever they see it violated. A possible policing approach would be to pick the low-hanging violator fruit and make examples of the miscreants whenever they're found, to encourage compliance within the small and large firms. Their credibility will suffer though, if they've focused solely on small fry firms - and problems erupt later at the big ones.

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