By James Hamilton, J.D., LL.M.
As the PCAOB prepares to revise its standard on internal control over financial reporting (AS2), SEC Commissioner Paul Atkins said it is incumbent on the Commission to make sure that the Board gets it right. Calling the PCAOB ``our ward,’’ Mr. Atkins noted that the SEC is overseeing the Board’s rewrite of AS2. In remarks before the Federalist Society, he went on to opine that the SEC has been taking too light a hand in the drafting of audit standards. He warned that getting the AS2 revision right could involve invoking untried and unwieldy SEC oversight powers.
Moreover, once the revised AS2 is adopted, he emphasized that the SEC will be vigilant to ensure that the PCAOB staff is not interpreting AS2 in a manner inconsistent with the spirit of the revisions. He decried the abandonment of a planned Regulation PCAOB, which would have formalized the SEC’s oversight of Board staff actions. He recommended dusting off Regulation PCAOB and using it as a baseline for the SEC’s relationship with the Board. To support this position, Comm. Atkins cited a recent PCAOB staff alert on accounting for options in which the staff weighed in on the legality of options granting practices, a matter he said was clearly outside the Board’s purview, let alone its staff. Currently, the SEC has little opportunity to change either the wording or the substance of PCAOB staff guidance. Interestingly, Mr. Atkins related that Regulation PCAOB was shelved due to a personal plea from Chairman McDonough to Chairman Donaldson complaining that it would give SEC staff undue authority over Board operations.