State Board Report

November 2009

Acknowledging that “the inevitable is death, taxes and IFRS,” Charles Niemeier, keynote speaker at NASBA’s Annual Meeting, November 1‐4 in Phoenix, questioned why international standards are being supported by US professionals. As a founding member of the Public Company Accounting Oversight Board, Mr. Niemeier observed that a “tremendous opportunity for solving problems” had passed and currently “there are movements afoot to undo the progress made” for standards in the investors’ interests. Mr. Niemeier spoke to 334 meeting attendees, including representatives from 52 State Boards of Accountancy.

Early regulatory gaps, which went back to the laws of the 1930’s, are what led to the Sarbanes‐Oxley (SOX) Act of 2002, Mr. Niemeier stated. Accounting and auditing requirements were ceded to the accounting profession itself and, when peer review was established, critics like former SEC Chief Accountant John C. Burton, thought it was “likely to be seen as mutual back scratching.” The skeptics proved right, Mr. Niemeier said, as in 25 years there was never an adverse result on a peer review of a major accounting firm.

Looking at the forces for globalization, Mr. Niemeier asked, “Who can be against the whole world operating under a single system?” Then he pointed out the differences among countries make the idea unpractical ‐ at least in the short run. People in the US invest to fund their retirement, so there is a stronger interest to insure that investment through more regulation. “Shouldn’t we understand if moving to another set of standards is really in the best interest of investors?” he asked.

Mr. Niemeier questioned the movement to a principles‐based system of standards, which are very difficult to enforce. “Verifiability is a very important part of our financial reporting process,” he noted and said the most common challenge that auditors face is, “Show me the rules where I can’t do that.” He called for the establishment of an agenda that is in the best interest of investors, that places a premium on reliability and the disclosure of problems. Mr. Niemeier acknowledged that there are problems in aligning the interests in financial systems and encouraged taking more time to understand the business model and the standards being applied. “Present financial statements need to provide more relevant information,” he stated.

“The markets are actually working well,” Mr. Niemeier said. However, he added, “We shouldn’t ignore the fact that incentives don’t.” He called on everyone to support good financial reporting. Asked about the challenges being faced by the PCAOB, Mr. Niemeier identified two: performing firm inspections in the international arena and determining how to handle quality control in global networks of auditing firms.

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