WASHINGTON Securities regulators have two leading candidates vying for a vacancy on the Public Company Accounting Oversight Board, which oversees the corporate auditing industry, people familiar with the matter told Reuters on Thursday.
The Securities and Exchange Commission is considering appointing either University of Tennessee professor Joseph Carcello or Jeanette Franzel, a managing director of financial management and assurance at the Government Accountability Office, these people said.
Whomever the SEC decides to tap would replace PCAOB board member Daniel Goelzer, whose term expired in October. He has served on the board of the auditor watchdog since it was set up under the post-Enron 2002 Sarbanes-Oxley Act.
Goelzer will stay on the board until a replacement is named.
The SEC's decision could have a major impact on the direction of the PCAOB's policy agenda. The board is pushing for reforms more aggressively than it has in the past and encountering strong resistance from the audit industry.
Carcello and Franzel both declined to comment, as did the PCAOB. The SEC declined to comment specifically on the two candidates. SEC spokesman John Nester said the agency has a "process under way to select someone of high integrity."
The PCAOB has the power to impose rules and to inspect and fine accounting and auditing firms, including the industry's dominant Big Four: Ernst & Young LLP, KPMG, PricewaterhouseCoopers and Deloitte & Touche LLP.
The SEC commissioners must ultimately vote on who to appoint as Goelzer's replacement. The candidate they select must be a certified public accountant. The law requires at least two of the board's five seats be held by CPAs.
It is unclear when the SEC will make its final selection, although interviews with both candidates are ongoing.
The open board seat comes at a crucial time for the PCAOB. Over the past year, it has tightened scrutiny of the industry after auditors gave clean bills of health to companies that failed or had to be bailed out in the 2008 financial crisis.
The PCAOB is considering whether to limit the number of years an audit firm can work for the same client - an action that could break up some business relationships more than a century old. It also is considering forcing individual audit partners to put their personal names on the audit reports attached to companies' financial statements.
People who are familiar with Carcello and Franzel said the SEC's choice could make or break the reform agenda of PCAOB Chairman James Doty, who in his first full year has helped raised the profile of the audit watchdog.
Carcello, a professor at the University of Tennessee and co-founder of the university's Corporate Governance Center, is highly regarded by investor advocacy groups for his work on two PCAOB advisory boards.
In 2009, he supported a controversial proposal to require the lead auditor to sign audit reports, a plan widely opposed by audit firms.
"This is a crucial selection in terms of whether the board is investor-oriented or industry- oriented," said Barbara Roper, director of investor protection for the Consumer Federation of America, a pro-consumer activist group. "It has always been the (audit) industry's goal to get this."
Franzel, meanwhile, has at times been a tough critic of both the SEC and the PCAOB through her work at the GAO.
In 2005, she helped lead the first-ever audit of the SEC's 2004 financial statement. She uncovered material internal control weaknesses. Numerous other deficiencies and problems were later found in subsequent GAO audits of SEC records.
She has also been critical of some of the PCAOB's past initiatives, including standards the audit watchdog board proposed for how auditors should access and respond to risk.
In several comment letters to the PCAOB in 2009 and 2010, she raised "serious concerns" about proposed new standards, saying they were at times inconsistent with well-established standards used by the industry.
She holds a Master's Degree in Business Administration from George Mason University and a bachelor's degree in accounting and Spanish from the College of St. Teresa.