The SEC and PCAOB Seriously Underestimate Investor Anger Over Backdating

by: Belvedere

Interesting piece in the Wall Street Journal on Friday: the SEC has asked the Public Company Accounting Oversight Board [PCAOB] to sit on its planned alert for getting auditors to consider “options-grant issues they should examine in audits, the people familiar with the matter said. The board also wanted to tell auditors that they should examine past auditing practices related to options grants if there was an indication of problems with them.”

The article goes on to cite an SEC spokesman saying they wanted to “avoid confusion in the marketplace” because the Commission will be publishing its own new rules on executive compensation later and felt that “it makes sense for the SEC and PCAOB “to go out with it at the same time.”

This makes little sense to me. If auditors should be looking at these transactions, it would be better to have them doing it now - when they can work it into their preliminary audit work instead of commissioning them to do it later when they are in the crush of their year-end audit work.

And while an “audit alert” might be effective in stimulating the auditors, the SEC itself should make it clear to companies - who are the ones who are supposed to be doing this right instead of waiting for the auditors to catch them - what they are expected to do.

The investor disgust with executive compensation levels is palpable, and the Commission knows it - and to their credit, is trying to address it with their planned disclosure overhaul. But I think they are seriously underestimating the amount of investor anger over backdating.

Related article: WSJ Options Scandal Scorecard.

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