Having two accounting standards in the US (AICPA/PCAOB) and even more globally (IAS) create a huge amount of inefficiencies and a lot of very highly paid public servants. The goal of accounting is to maintain reliable financial statements that serve investors. This can happen with one set of accounting standards - AICPA. I would proposing enhancing AICPA standards and completely eliminate the PCAOB as it creates a HUGE amount of inefficiencies in the finance and accounting profession.
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Continuing the discussion from Eliminate PCAOB and SOX requirements:
New rules and regulations that led to the PCAOB and SOX were put into place in reaction to corporate financial fraud. It was found that auditing firms were negligent or complicit in these frauds. The system in place at that time was not working as intended.
The increased oversight led to significantly increased costs for public companies and their auditors. Public companies were forced to add personnel and processes. Audit fees were doubled, tripled, or raised even higher. Of course, increased audit fees become a corporate cost that is, ultimately, passed to consumers. All these changes accomplished little other than greatly increasing the complexity and, in many cases, confusion around creating, publishing, and reading public financial statements.
A few suggestions:
Simplify accounting and reporting rules. Accounting rules are meant to produce consistent and digestible financial information. Many rules (including most of the new rules) are too complex for non-institutional readers to understand. This complexity does a disservice to most readers of financial statements.
Eliminate judgment from financial statements where possible. Corporate judgment and the financial concept of âmaterialityâ can be used to skew reported financial results. Where judgment cannot be eliminated, put firm and narrow guardrails in place to guide these judgments.
Increase penalties for the bad corporate actors and their auditors. Let them know that finding wiggle room to skew financial results is a risk not worth taking.
Above I mentioned that the system in place was not working as intended. Adding complexity to the rules and bureaucracy was not the best solution. By simplifying we can create a system that does not look like smoke and mirrors to the average person. By reducing the amount of judgment used to produce financial statements we can improve the consistency of these reports. By increasing penalties we can lower incentives to perpetrate financial fraud.
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I agree but still should be considered for two reasons.
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The accounting standard setter should strongly be considered to be outside of government (not funded by tax payer dollars).
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Any âgoodâ PCAOB rule like customer protection post Bernie Madoff should be moved to AICPA to have one set of accounting standards. You want to avoid the pattern of disasterâ>regulationâ>disasterâ>regulation; so on and so forth until we have a mountain of regulation all funded by tax payer dollars.