* Oversight board must decide on sweeping auditor reforms
* New member named by SEC opposed by one of its own
* SEC commissioner says appointee not an investor advocate
By Dena Aubin
Feb 3 In an unusually public split within
the market-regulating U.S. Securities and Exchange Commission,
one of its commissioners on Friday openly opposed the
appointment of a new member to a separate panel that polices the
corporate audit industry.
Saying the appointee lacks a record of investor advocacy,
Commissioner Luis Aguilar charged the SEC with failing to meet
its legal obligation in appointing, earlier on Friday, Jeanette
Franzel to the Public Company Accounting Oversight Board.
A spokesman for the SEC had no immediate comment. Franzel
could not immediately be reached for comment.
The SEC oversees the PCAOB, which Congress created, in 2002
after the Enron-era scandals, to regulate audit firms, including
the Big 4 that dominate the audit industry:
PricewaterhouseCoopers, Ernst & Young, KPMG and Deloitte.
Franzel's appointment comes at a crucial time for the PCAOB.
It is considering a set of sweeping auditor reforms that have
followed on from widespread complaints about the performance of
auditors in the 2007-2009 financial crisis.
Franzel is expected to cast a deciding vote on the
five-member PCAOB board in dealing with the proposals.
She is now a managing director of the Government
Accountability Office, the investigative arm of Congress, where
she oversees audits of the federal government.
The SEC picked Franzel over another finalist who had been
favored by some investor advocates, University of Tennessee
accounting professor Joseph Carcello.
"My objection to this appointment is based on the fact that
the commission must appoint individuals who have 'demonstrated
commitment to the interests of investors,'" Aguilar said in a
statement. "This is not the case here."
Aguilar said he reached that conclusion after reviewing
candidates' records and speaking with investors, academics, and
members of Congress who supported the appointment of an investor
BOARD CONTROL LONG CONTESTED
The control of the PCAOB board has long been a subject of
controversy. The Sarbanes-Oxley Act that created the PCAOB calls
for two members to be certified public accountants, and investor
advocates have long pushed for those positions to be filled by
accountants with a history of promoting investor interests.
Franzel fills one of the two CPA slots, replacing Daniel
Goelzer, whose term expired in October.
"Her unique qualifications are going to come because of her
background at the GAO and its focus on fighting and detecting
fraud," said Brian Fox, founder of Confirmation.Com, a company
that offers audit confirmation services.
"That's what the PCAOB was put in place to do," said Fox,
who said he has worked with Franzel on fraud detection issues.
Created to combat accounting fraud after the Enron and
WorldCom accounting scandals, the PCAOB replaced decades of
self-regulation by the accounting industry.
Franzel has previously participated on a PCAOB advisory
group as an observer.
Franzel's record "was one in which she advocated strongly
for the PCAOB to simply adopt standards the audit firms
themselves had written," said Lynn Turner, a former chief
accountant at the SEC.
PCAOB Chairman James Doty said in a statement that Franzel's
"extensive experience in the field of securities regulation and
auditing standards will enable her to hit the ground running."
Under Doty's leadership, the PCAOB has brought up for debate
a number of audit reforms, such as requiring companies to change
auditors after a set number of years. That idea has been
vehemently opposed by the accounting industry and businesses
The PCAOB is also considering whether to require more
information in the audit opinions that back up the accuracy of
companies' financial statements, including the name of the
person in charge of the audit.