Critics say the PCAOB provided auditors with too little 404 guidance — and too much. Until a May 16 statement from the board, accountants had been left to guess how much advice they could offer clients when assessing internal controls. At the same time, auditors had been bombarded with statements from regulators about what they were not allowed to do. “We kind of felt sorry for them,” says Richard Wehrle, vice president and controller at Alamo Group Inc., a Seguin, Texas, maker of grounds-maintenance machinery. “New bulletins were coming out weekly. Each time we had a meeting, they’d say, ‘Here’s a new guideline.’ ”
Partners at accounting firms are taking no chances. “Auditors have reacted with a little bit of fear and a lot of uncertainty,” grants William D. Travis, managing partner of Minneapolis-based accounting firm McGladrey & Pullen LLP. “[They're wondering,] ‘What stance will the PCAOB take? Will they use a hammer to keep people in line?’ ”
Some finance executives say auditor concern about regulatory sanctions has translated into unnecessary 404 precautions. “There was a lot of duplication of work,” claims Dennis Stevens, director of internal audit at Alamo Group. “They were making us do things that were really about protecting them.”
Recent Website postings and comment letters echo that sentiment, with CFOs complaining about the documentation required by auditors. It hasn’t helped that outside accountants have apparently gone quiet on clients. Dialogue, once considered the cornerstone of a good auditor/client relationship, has simply ceased.
The lack of input often has CFOs flying blind — leaving them little choice but to interpret complex accounting standards on their own. The silent treatment can be infuriating. “We recently went to our auditor [with a question],” says Leon Level, CFO of Computer Sciences Corp., “and it was like Fear Factor 101. They said, ‘Where’s your white paper?’ ” Eventually, Level went to three of the Big Four firms in search of written advice. He never got any. “I’m the CFO of a major public company,” he bristles, “and I couldn’t get an answer.”
That’s a seismic shift in how auditors deal with clients. “It used to be, ‘Hey guys, here’s an accounting problem; how do we address it?’” recalls David Adante, CFO at landscaping specialist The Davey Tree Expert Co. “Now it’s, ‘Hey guys, we have an accounting problem and here’s how we addressed it. What do you think?’ ”
Auditors don’t deny the charge. But they place much of the blame on regulators. “There’s a new sheriff in town,” explains Travis. “So some auditors have acted extremely conservatively and, in some cases, not all that logically.”
Certainly, auditors have tended to err on the side of caution when addressing client inquiries. “The question is, How much assistance can an auditor provide before it’s the auditor’s answer and not the client’s?” asks David Breen, U.S. assurance operational leader at PricewaterhouseCoopers LLP. “At the end of the day, the client must own the answer.”