Transcript: Standing Advisory Group Meeting - Public Company

341 Pages·2014·0.7 MB·English

NOTICE: This is an unofficial transcript of the Public Company Accounting
Oversight Board’s Standing Advisory Group meeting on October 2, 2014 on
Auditing Accounting Estimates and Fair Value Measurements.

The Public Company Accounting Oversight Board does not certify the accuracy
of this unofficial transcript, which may contain typographical or other errors or
omissions. An archive of the webcast of the meeting can be found on the Public
Company Accounting Oversight Board’s website at:
http://pcaobus.org/News/Webcasts/Pages/10022014_SAG.aspx
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PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD
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STANDING ADVISORY GROUP
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MEETING
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THURSDAY
OCTOBER 2, 2014
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The Standing Advisory Group convened in the FHI Building,
8th Floor, 1825 Connecticut Avenue, N.W., Washington,
D.C. at 9:45 a.m., Martin Baumann, Standing Advisory
Group Chairman, presiding.
PCAOB BOARD OF DIRECTORS
JAMES R. DOTY, Chairman
LEWIS H. FERGUSON, Board Member
JEANETTE M. FRANZEL, Board Member
JAY D. HANSON, Board Member
STEVEN B. HARRIS, Board Member
STANDING ADVISORY GROUP
MARTIN F. BAUMANN, PCAOB, Chief Auditor and
Director of Professional Standards
HON. RICHARD C. BREEDEN, Chairman and CEO,
Breeden Capital Management LLC
STEVEN E. BULLER, Chairman, Financial
Accounting Standards Advisory Council
LORETTA V. CANGIALOSI, Senior Vice President
and Controller, Pfizer, Inc.
WALTON T. CONN, JR., U.S. Partner and Global
Head of Audit Methodology and
Implementation, KPMG LLP
NEAL R. GROSS
COURT REPORTERS AND TRANSCRIBERS
1323 RHODE ISLAND AVE., N.W.
[phone] WASHINGTON, D.C. 20005-3701 www.nealrgross.com
2
WALLACE R. COONEY, Vice President-Finance and
Chief Accounting Officer, Graham
Holdings Company
JAMES D. COX, Brainerd Currie Professor of
Law, Duke University School of Law
CHARLES M. ELSON, Edgar S. Wollard, Jr., Chair
of Corporate Governance and Director,
John L. Weinberg Center for Corporate
Governance, University of Delaware
MICHAEL J. GALLAGHER, Managing Partner,
Assurance Quality, PwC
ROBERT L. GUIDO, Public company board member
ROBERT H. HERZ, CEO, Robert H. Herz, LLC;
Executive-in-Residence, Columbia
Business School, Columbia University
ROBERT B. HIRTH, JR., Chairman, Committee of
Sponsoring Organizations of the Treadway
Commission (COSO)
PHILIP R. JOHNSON, Nonexecutive Director,
Yorkshire Building Society
JEAN M. JOY, Director of Professional Practice
and Director of Financial Institutions
Practice, Wolf & Company, P.C.
GUY R. JUBB, Global Head of Governance and
Stewardship, Standard Life Investments,
Ltd.
WAYNE A. KOLINS, Partner, BDO USA, LLP; Global
Head of Audit and Accounting, BDO
International Limited
JEFFREY P. MAHONEY, General Counsel,
Council of Institutional Investors
DOUGLAS L. MAINE, Limited Partner and Senior
Advisor, Brown Brothers Harriman & Co.
MAUREEN F. McNICHOLS, Marriner S. Eccles
Professor of Public and Private
Management and Professor of
Accounting, Stanford University
RICHARD H. MURRAY, CEO, Liability Dynamics
Consulting, LLC
JENNIFER PAQUETTE, Chief Investment Officer,
Colorado Public Employees= Retirement
Association
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3
WILLIAM T. PLATT, Managing Partner-
Professional Practice, and Chief
Quality Officer-Attest, Deloitte &
Touche, LLP
RACHEL D. POLSON, Partner, Baker Tilly
Virchow Krause, LLP
GREGORY A. PRATT, Chairman, Carpenter
Technology Corporation
SRIDHAR RAMAMOORTI, Associate Professor of
Accounting, School of Accountancy, and
Director, Corporate Governance Center,
Kennesaw State University
BRANDON J. REES, Acting Director, Office of
Investment, AFL-CIO
KEVIN B. REILLY, Americas Vice Chair,
Professional Practice and Risk
Management, Ernst & Young LLP
WALTER G. RICCIARDI, Partner, Paul, Weiss,
Rifkind, Wharton & Garrison, LLP
PHILIP J. SANTARELLI, Chief Risk Officer,
ParenteBeard, LLC
THOMAS I. SELLING, President, Grove
Technologies, LLC
BRIAN D. THELEN, General Auditor and Chief
Risk Officer, General Motors, LLC
SIR DAVID P. TWEEDIE, Chairman,
International Valuation Standards
Council
JOHN W. WHITE, Partner, Corporate
Department, Cravath, Swaine & Moore
LLP
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4
OBSERVERS
BRIAN CROTEAU, Securities and Exchange
Commission
JIM DALKIN, General Accountability Office
IAN DINGWALL, Department of Labor
HARRISON GREENE, Federal Deposit Insurance
Corporation
ELIZABETH HEIMLICH, Financial Industry
Regulatory Authority
ARNOLD SCHILDER, International Auditing and
Assurance Standards Board
LARRY SMITH, Financial Accounting
Standards Board
BRUCE WEBB, Auditing Standards Board
PRESENTERS
MATT BRODIN, Evaluated Services Director,
Interactive Data Corp
PATRICK FINNEGAN, Board Member,
International Accounting Standards
Board
LISA MILICI GAYNOR, Associate Professor,
University of South Florida
JACQUELINE S. HAMMERSLEY, Associate
Professor of Accounting, University of
Georgia
ROBERT H. HERZ, Executive-in-Residence,
Columbia Business School, Columbia
University; public company board
member
BRIAN A. HUNT, Chief Executive Officer,
Canadian Public Accountability Board
JEAN M. JOY, Director of Professional
Practice and Director of Financial
Institutions Practice, Wolf & Company,
P.C.
JEREMY JUSTIN, Senior Director, Canadian
Public Accountability Board
JEFFREY P. MAHONEY, General Counsel, Council
of Institutional Investors
NEAL R. GROSS
COURT REPORTERS AND TRANSCRIBERS
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5
ALAN MEDER, Senior Managing Director, Chief
Risk Officer, Duff & Phelps Investment
Management
LIZA McANDREW MOBERG, Counsel, Office of
International Affairs, PCAOB
HELEN MUNTER, Director, Division of
Registration and Inspections, PCAOB
TOM OMBERG, Managing Partner, Professional
Practice, Deloitte & Touche LLP
SANDRA J. PETERS, Head, Financial Reporting
Policy Group, CFA Institute
THOMAS I. SELLING, President, Grove
Technologies, LLC; author, "The
Accounting Onion" blog
LAWRENCE W. SMITH, Board Member, Financial
Accounting Standards Board
SIR DAVID P. TWEEDIE, Chairman,
International Valuation Standards
Council
PCAOB STAFF
NIKE ADESOYE, Assistant Chief Auditor
HELEN MUNTER, Director, Division of
Registration and Inspections
GREG SCATES, Deputy Chief Auditor, Office of
the Chief Auditor
DOMINIKA TARASZKIEWICZ, Assistant Chief
Auditor
BARB VANICH, Associate Chief Auditor,
Office of the Chief Auditor
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COURT REPORTERS AND TRANSCRIBERS
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6
TABLE OF CONTENTS
Welcome and Introductions . . . . . . . . . . . . . 8
PCAOB and Global Inspection Findings
Helen Munter . . . . . . . . . . . . . . . . . . . 22
Brian A. Hunt . . . . . . . . . . . . . . . . . . . 29
Jeremy Justin . . . . . . . . . . . . . . . . . . . 30
Liza McAndrew Moberg . . . . . . . . . . . . . . . 41
Investor Perspectives and Related Considerations
Thomas I. Selling . . . . . . . . . . . . . . . . . 57
Sandra J. Peters . . . . . . . . . . . . . . . . . 66
Jeffrey P. Mahoney . . . . . . . . . . . . . . . . 92
Academic Research and Related Perspectives
Lisa Milici Gaynor . . . . . . . . . . . . . . . 104
Jackie Hammersley . . . . . . . . . . . . . . . . 120
Developments in Valuation
Sir David P. Tweedie, Chairman,
International Valuation Standards Council . . . . 143
Question and Answer Session . . . . . . . . . . . 157
Matt Brodin, Evaluated Services Director,
Interactive Data Corp. . . . . . . . . . . . . . 160
Question and Answer Session . . . . . . . . . . . 175
Alan Meder, Senior Managing Director, Chief
Risk Officer, Duff & Phelps Investment
Management . . . . . . . . . . . . . . . . . . . 190
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COURT REPORTERS AND TRANSCRIBERS
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7
Developments in Financial Reporting
Frameworks Affecting Accounting Estimates
Patrick Finnegan, Board Member,
International Accounting Standards Board . . . . 199
Question and Answer Session . . . . . . . . . . . 208
Lawrence W. Smith, Board Member, Financial
Accounting Standards Board . . . . . . . . . . . 211
Question and Answer Session . . . . . . . . . . . 215
Break . . . . . . . . . . . . . . . . . . . . . . 221
Auditing Accounting Estimates:
Auditor & Audit Committee Perspectives
Robert H. Herz . . . . . . . . . . . . . . . . . 223
Tom Omberg . . . . . . . . . . . . . . . . . . . 240
Jean Joy . . . . . . . . . . . . . . . . . . . . 256
Comments and Remarks . . . . . . . . . . . . . . 266
Overview of Staff Consultation Paper
and Related Discussion
by Barbara Vanich, Associate
Chief Auditor, PCAOB . . . . . . . . . . . . . . 286
Further Comments and Remarks
by Douglas Maine . . . . . . . . . . . . . . . . 289
Closing . . . . . . . . . . . . . . . . . . . . . 289
NEAL R. GROSS
COURT REPORTERS AND TRANSCRIBERS
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[phone] WASHINGTON, D.C. 20005-3701 www.nealrgross.com
8
1 P R O C E E D I N G S
2 9:47 a.m.
3 MR. BAUMANN: I'm going to take this opportunity
4 of a certain silence to get the meeting started. Good
5 morning, everybody. I'm Marty Baumann, PCAOB's Chief
6 Auditor and Director of Professional Standards. It's my
7 pleasure to welcome all of you here, both those here and
8 on our webcast, to this special meeting of the PCAOB's
9 Standing Advisory Group.
10 This meeting was not on the year's original plan
11 for meetings of the SAG and was organized only relatively
12 recently. Having said that, we're really delighted with
13 the turnout and the willingness of SAG members and
14 panelists that we've invited and other observers to
15 adjust your calendars and be here today. So for us,
16 we're delighted that so many of you are willing to
17 participate in what we hope is a very valuable meeting
18 and very informative meeting on this most important
19 topic.
20 As you know, we benefit greatly at the PCAOB from
21 the advice we get from the Standing Advisory Group on all
22 of our various different issues and matters of standard
NEAL R. GROSS
COURT REPORTERS AND TRANSCRIBERS
1323 RHODE ISLAND AVE., N.W.
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9
1 setting. And we look forward to these meetings and the
2 contributions that we receive.
3 As I'm starting to talk, one of the things I
4 should mention early on is our standard disclaimer. The
5 views expressed today by each of the panelists and
6 presenters during today's meetings are their own personal
7 views and are not necessarily those of the PCAOB, members
8 of the Board, or the PCAOB staff. And those include
9 views of the staff. Our own views are not necessarily
10 the views of the Board or the organization.
11 Today's meeting is a bit unique compared to some
12 of our previous SAG meetings where we've covered a
13 variety of topics. Today, we're really focused on one
14 topic, one topic but one very important topic, and that
15 is the Staff Consultation Paper issued on August 19th
16 pertaining to auditing accounting estimates, including
17 fair value measurements. When you look at a set of
18 financial statements, it really boils down to a bunch of
19 accounting estimates and fair value measurements, so this
20 is really an important area of accounting and auditing
21 that needs the focus of our attention in making sure we
22 get this right in standard setting.
NEAL R. GROSS
COURT REPORTERS AND TRANSCRIBERS
1323 RHODE ISLAND AVE., N.W.
[phone] WASHINGTON, D.C. 20005-3701 www.nealrgross.com