NEW POB CHARTER

The Public Oversight Board (POB) recently announced agreement on a new charter aimed at strengthening and broadening its oversight of the auditing profession’s self-regulatory programs and standards-setting processes. The POB and the AICPA formally approved the charter after extensive discussions between both organizations, the SEC Practice Section (SECPS), the Big Five, and the SEC.

Since the POB’s formation in 1977, it has been operating under bylaws and other organizational documents but without a formal charter. The provisions of the new POB charter are consistent with the recommendations included in the report and recommendations from the POB Panel on Audit Effectiveness (the O’Malley Panel) released in August 2000. At the urging of then SEC Chairman Arthur Levitt, the O’Malley Panel was formed to study the effectiveness of independent audits. The report included recommendations aimed at improving audit performance and unifying a system of professional governance under a strengthened, independent POB.

The POB consists of five members with a range of business, professional, regulatory, and legislative experiences. The current POB members are Chair Charles A. Bowsher, former Comptroller General of the United States; Vice Chair Donald J. Kirk, former FASB chair; Melvin R. Laird, former congressman and Secretary of Defense; Aulana L. Peters, former SEC commissioner; Norman R. Augustine, former chair and CEO of Lockheed Martin Corporation and undersecretary of the Army; and John H. Biggs, CEO of TIAA-CREF. Biggs joined the POB in May, replacing Paul H. O’Neill, formerly chair and CEO of Alcoa, who left the POB to become secretary of the U.S. Treasury.

The full text of the new charter is available online at www.publicoversightboard.org. The following are key features of the charter:

• Expanded oversight over the Auditing Standards Board (ASB) and Independence Standards Board (ISB);
• Expanded responsibility for improving communication among the various bodies that make up the self-regulatory system through a new Coordinating Task Force;
• An expanded role to conduct oversight reviews and to undertake other projects and actions that are deemed to be appropriate to protect the public interest; and
• Increased resources, both in staffing and budget.

“It’s not a promising beginning when the preamble of the POB’s charter is 30 times longer than the preamble to the Constitution of the United States,” said Robert N. Waxman, immediate past chair of the NYSSCPA SEC Practice Committee. “But the charter’s preamble is largely historical background, and after 1,500 words it contains just one idea: ‘to strengthen cooperative self-regulation through enhanced authority and activities of the POB.’ Because the POB is an oversight organization and not a standards-setting body, the charter sets out the POB’s bylaws and its supervisory role rather than its agenda or a specific action plan.

“Improving the quality of independent audits is undeniably good, but my questions are: Who is the POB’s ‘client’ and who is it accountable to? To the public? The SEC? The AICPA—where the POB gets all of its $5 million annual budget? Or is it accountable to all of the above? If the POB is in some small way accountable to the public,” Waxman commented, “then the POB’s effectiveness should be evaluated every year and not at the end of the three-year period specified in the charter. Also, the organizational chart, with the ISB, ASB, the SECPS with its various committees and task forces, and the new Coordinating Task Force, makes the POB’s setup and the lines of responsibility somewhat opaque and highly complex, rather than transparent and streamlined.

“I am glad that the members of the POB and its nominating committee are entirely non-CPAs; in that sense, the POB is wholly independent. I am also reassured that the charter states the POB’s expanded role, including oversight of all the areas of the SECPS, in addition to peer review—which it always had—and the ASB and ISB. My hope is that the POB’s more visible role will translate into these self-regulatory agencies being much more proactive in anticipating and solving problems. I’ll be interested,” Waxman concluded, “to see how the new realignment actually changes things.”

The CPA Journal is broadly recognized as an outstanding, technical-refereed publication aimed at public practitioners, management, educators, and other accounting professionals. It is edited by CPAs for CPAs. Our goal is to provide CPAs and other accounting professionals with the information and news to enable them to be successful accountants, managers, and executives in today's practice environments.