State Board Report

November 2011

Mandatory rotation of audit firms will not work, Michael Young, Esq., flatly stated at the NASBA Annual Meeting, observing, “We are in the midst of a rule-making frenzy.” He stated, “What motivates a professional is a job well done. The solution is not piling on more rules. It should be how do we align the client and the auditor so that they both want transparency.” Mr. Young believes there is a need for audit committee members to have a better understanding of how an audit works, its limitations and the importance of corporate culture. Auditors have to work to improve communication with audit committees, he maintains.

Noel Allen, Esq., NASBA legal counsel, responded, “Part of this is that state and federal regulators have to have a rule besides ‘Thou should be transparent.’ You have to point to something in the rules that if the licensee did something they would be in violation.” He noted that in North Carolina’s CPA license renewal form the applicant has to state that he or she knows and understands all of the state’s rules of accountancy. Within the past year, two dozen cases were brought against Boards for just doing their jobs – and they needed rules to point to, Mr. Allen noted.

Commenting on PCAOB Chairman James Doty’s earlier remarks, Mr. Allen said he appreciated the Chairman’s reference to the help NASBA’s amicus brief was to the PCAOB, and his affirmation of the role that state regulators play. “There are ways the PCAOB can have better communication with State Boards to get things done, but a lot has been done,” he observed.

As to the PCAOB’s recent proposals, Mr. Young said, “The notion that the auditor has this subjective information to share with the investor – it doesn’t work. We are trying to force out of the mouth of the auditors what should be coming out of the mouth of the company.”

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