May 26, 2005

PCAOB Brings First Disciplinary Action

On Tuesday, the PCAOB brought its first enforcement action – and it was a big one, revoking one firm’s registration and disciplining three accountants for their “failure to cooperate.”

As discussed in this press release, the PCAOB “found that the partners, after learning of the imminent inspection, formulated and carried out a plan to create and back-date certain documents and place them in the firm’s audit files. The Board found that Messrs. Morris, Goldberger, and Postelnik took these steps to conceal from the Board the firm’s failure to comply with certain auditing standards.” The Board barred the former managing partner from auditing public company – and also censured two other former partners, finding that they participated in the misconduct but noting that they promptly alerted the PCAOB and cooperated in the Board’s investigation. Lesson learned: don’t interfere with the PCAOB inspection process!

Meanwhile, there are some interesting tidbits in this response from the PCAOB to questions raised by SEC Commissioner Paul Atkins (these questions were raised a few months ago during an open Commission meeting over the PCAOB’s budget).

SEC Facing Budget Shortfall

On Tuesday, a number of media outlets carried the news that the SEC’s budget is tight and, as a result, non-critical travel is restricted and hiring will be limited until the new fiscal year that commences in the fall. Here is an article about this from the Financial Times:

“A US spending watchdog has been asked to investigate budget problems at the Securities and Exchange Commission, the chief financial regulator.

The Government Accountability Office has been urged to look at how the SEC faces a budget shortfall of about Dollars 50m over three years because of problems stemming from the financial management of projects to provide new offices in Washington, New York and Boston.

Frank Wolf, chairman of the House appropriations subcommittee that monitors the SEC budget, told the GAO in a letter yesterday that he was “troubled” by the problems and asked it to investigate.

“This is very damaging to the SEC,” said Mr Wolf after speaking to William Donaldson, SEC chairman. “The SEC polices other people’s books yet they themselves have huge overruns. I am very disappointed.”

The potential budget shortfall has been put at Dollars 48m by senior SEC officials, and its impact will be felt during 2005, 2006 and 2007.

The costs of the new SEC headquarters in Washington are set to increase by Dollars 19m partly because no provision was made for security measures in the original 2000 estimates.

The Dollars 25m move of the SEC New York office from the Woolworth building to World Financial Center was never included in the regulator’s 2006 budget.

The costs of a new SEC building in Boston are set to increase by up to Dollars 2m. The SEC is to set aside a further Dollars 2m to deal with other potential issues.

Senior SEC officials are confident the regulator can deal with the budget shortfall by finding savings elsewhere. Some posts at the SEC will not be filled, and curbs are to be placed on staff travel. The enforcement division is not expected to be affected by the austerity measures.

The SEC said: “We have been investigating the budget situation and are in regular communication with Congress as to how we will be proceeding.”

The SEC budget was boosted to deal with the spate of corporate scandals led by Enron, but President George W. Bush proposed cutbacks in February.

Yesterday, Mr Wolf’s sub-committee approved the SEC budget of Dollars 888m for 2006, which compares to Dollars 913m for 2005. The SEC had asked for a budget of Dollars 983m for 2006.”

60 Sites in 60 Minutes

The highlight of the ABA’s Techshow is the panel that reviews “60 Sites in 60 Minutes.” Here are a set of links to the sites presented at this year’s program. My favorite site are the oddball ones they present, such as the “World Beard Championships” and “How to Keep an Idiot Busy” [Not quite sure I understood “Googlism.”] Who said lawyers are no fun…