Mark Olson, chairman of the Public Company Accounting Oversight Board, will retire after three years at the helm of the fledgling regulator.
Olson joined the accounting-firm overseer in July 2006, around the time the non-governmental entity had begun reworking its controversial internal-control rule that auditors must follow when they do their Sarbanes-Oxley attestations for corporate clients.
The Securities and Exchange Commission, which oversees the PCAOB, appointed Olson to succeed the board’s second chairman, William McDonough. Under Olson’s tenure, the PCAOB has had to defend its existence amid questions about its constitutionality. It also had to settle into its relatively young status as a regulator, inspector, and standard-setter for the firms that review public companies’ financial statements.
Later this year, the U.S. Supreme Court is scheduled to hear arguments in a separations-of-powers case brought against the PCAOB. The plaintiffs claim board appointments should be subject to government scrutiny beyond the SEC’s authority.
Olson’s appointment came four years after Sarbox — which mandated the establishment of the PCAOB — became law. He took the reigns, he told CFO.com, of an organization “going through a transition from a startup to more of a steady-state organization.” He counts high among his accomplishments several organizational changes, improvements in the board’s inspections, and a strengthening of its enforcement capability.
Still to go, he says, are more negotiations with PCAOB counterparts in European and Asian countries to get the right to fully inspect the audit firms based overseas that audit U.S. public companies. The PCAOB has run into resistance from other regulators. Olson also hopes Congress either passes or makes progress on legislation by the time he leaves office on July 31 that would enable the PCAOB to inspect and have enforcement rights over auditors of privately held brokers/dealers.
Moreover, his successor may have to issue or amend guidelines as the fallout from the financial crisis plays out in the hands of retrospectively focused lawmakers. “Accounting and auditing standards have evolved over the years, but until you have the kind of financial crisis we’ve been through, they are not really fully tested,” Olson says. “They are being tested in a number of ways — to a lesser extent on the auditing side — but particularly on the accounting side, we are learning where there are strengths or weaknesses.”
As it is, in light of the credit crunch, the PCAOB has issued crisis-related guidance to keep auditors on high alert in their reviews of how firms have accounted for mortgage-backed securities. It is also looking into how auditors come up with their estimated prices of assets and liabilities under the fair-value accounting rules. Olson has expressed concerns over auditors’ ability to keep up with the technical know-how involved in looking over complex estimates for financial instruments that are thinly traded or not traded at all. “Auditors should be mindful that financial statement preparers can be biased — even if unknowingly so — in their assessments of fair value,” he has said.