Audit Firms Get Their Grades

Check out the latest accounting industry score card (PDF) from the Public Company Accounting Oversight Board (PCAOB), the U.S. regulator of accounting firms, which looked at the performance of such firms during the financial crisis. No prizes for guessing it was not straight “A”s. The better question is whether the marks are even passing, or grounds for expulsion. No one is suggesting that somehow the accounting industry should have predicted or prevented the looming crisis. But it is fair to question the seriousness of the breaches in accounting/auditing protocol, and how much they contributed to the depth and duration of the worst financial meltdown in decades. The report answers none of those questions. It is scant comfort the PCAOB reveals it found serious and consistent breaches of acceptable auditing practice during the period leading up to, and during, the crisis itself. Whether such breaches were simply standard operating procedure and we shouldn’t expect more of the same, or whether these were particularly careless efforts, abetting what became record financial dislocation, is anyone’s guess. If we have any real prospect of systemic risk oversight, it is critical to get a more transparent assessment and explanation for how such behavior will be rectified and prevented in the future.