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15 Sep

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Niche Market Insights: Financial Communities and the PCAOB

September 15, 2011 | By | No Comments

Have you heard all of the recent online chatter about  new accounting practices that if implemented, could affect any publicly traded company?  While the audit procedural discussions streaming out of the financial sector are plentiful, unless you’re a CFO or CPA, you probably overlooked it, even though it has gained a lot of traction in the finance community.

These audit and compliance discussions streaming out social media and other online channels are plentiful, and it could have a serious effect on you and your business if you use an audit firm currently or are likely to use an audit firm in the future.

So what’s all the talk??

Let’s start with the PCAOB (Public Company Accounting Oversight Board), which is a nonprofit corporation established by Congress to oversee the financial audits of public companies. The board is designed to protect investor and public interests and make sure that auditors of U.S. public companies are writing accurate reports about a company’s solvency and financial practices. You may remember a little audit compliance failure called Enron – a  scandal led to the creation of the Sarbanes-Oxley Act of 2002 and the PCAOB.

Why should I care about this?

When public companies fail, as many have in the financial crisis, investors and the public start wondering why we didn’t see it coming, and why independent audits from the Big Four auditing firms didn’t give us a warning. Public companies and their auditing firms often enjoy really long term relationships – really long term. For example, General Motors has been with Deloitte for 92 years. In light of recent financial crises, the PCAOB has suggested a concept of Mandatory Audit Firm Rotation as a measure to promote auditor independence and accuracy. The proposed mandatory rotation would force public companies to switch auditing firms every few years.

Supporters think this is a great idea to make auditors more objective in their work. Opponents believe that mandatory rotation would be too costly and disruptive for business, especially those with complex international operations. It may just be a concept right now, but if such a regulation were to be put into effect, the changed relationship between public companies and their auditors could have repercussions for CFOs, startups looking to go public, and finance departments in public companies.

So where does the online listening come in?

Social Strategy1’s trained online listening analysts have been following this topical trend for one of our clients since the PCAOB formally introduced the concept in August. Using Social Strategy1’s online monitoring platform, our analysts reviewed multiple articles, comments and social commentary from social media and media sources like Compliance Week, CFOworld, and Accounting Today to reveal key trends among stakeholders. Here’s what we’re keeping an eye on:

  • The PCAOB is hosting a roundtable today, officially to discuss auditor reports. But our listening revealed that some folks in the finance community expect the agenda to turn to the topic of mandatory audit firm rotation. If you want to find out what happens, you can listen in to the roundtable webcast.
  • Even though we’re living in financially turbulent times, when public trust in the finance industry is low, stakeholders and CFOs aren’t ready to embrace audit firm rotation as a possible solution to keep auditors honest. There’s still plenty of feeling that it’s a flawed idea and it has the potential to be an expensive proposition for American businesses.
  • Proponents of mandatory rotation believe it could free the auditors from client pressure and enable them to look at the financial statements more objectively.

How will it impact your business and/or industry?  What are you doing about it?  Are you listening online to the events and discussions affecting your industry?  Please share your thoughts in the comments section below.

If you want to find trends like this in your industry that could impact your business, contact us for additional information, or to schedule a demo, call 877-SS1-DEMO. That’s our niche market insight on the financial sector for the week! Stay tuned – we’ll be back next Thursday to provide more industry intelligence – this time from the healthcare sector.

Jennifer Muñoz is Director of Operations & Strategy Analyst with Social Strategy1. She contributes blog posts weekly and can be found on Twitter @getaJenny. Want additional strategy insights? Follow us on Twitter at @sstrategy1.

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