Changing Landscape

Today's Wall Street Journal published a thoughtful op-ed piece by Kenneth Wilcox, the CEO of SVB Financial Group, who suggests that regulation by the FASB, PCAOB and the SEC has become so complex and so rigid that rules are both difficult to keep up with and interpret even after you've digested them. (And who, really, gets to do much of that?) While his essay was really about the potential impact of regulation on the economy, I was struck by this:

It turns out, however, that only a diminishing portion of this increase is due to Sarbox. More and more of it is due to the significantly increased amount of time that audits are taking, and the much larger number of people that they involve. Trying to tease out exactly why they are taking longer and why more people are involved is difficult. When I ask, I get a host of different but related answers. The auditors are operating with droves of often newly hired and therefore inexperienced people. They appear to have lost any sense of the time-honored accounting concept of "materiality." They appear to have very little decision-making power. Decisions, which increasingly need to be sent to superiors in far-away locations, take much longer than just a few years ago.

Nobody appears to want to exercise judgment, either with respect to the applicability of a given Financial Accounting Standards Board (FASB) pronouncement, or to its application. Rules are applied, whether the original framers were targeting the situation at hand or not. And testing takes forever. In situations where just a few years ago just a few tests might have sufficed, today several times as many may be required. Finally, everybody seems to be operating from a position of fear, of rejection or remonstrance.

Two paragraphs that sum up very nicely the pressures faced by many an auditor, slogging away...

Dealing with Sarbox [WSJ]