The new chief auditor and director of
professional standards at the US Public Company Accounting
Oversight Board (PCAOB) is taking over at a decisive time as
regulators and governments grapple with the financial crisis.
But Martin Baumann does not seem too fazed
about stepping into this key role at such a crucial point.
“There
is a banking crisis now but throughout history there have been a
number of banking crises. I was a partner in the banking world in
the early 1980s when there was the crisis of loans to lesser
developed countries and in the early 1990s there was a real estate
crisis in the US, which caused trouble for many banks,” he
says.
Baumann began his career with 33 years at
Price Waterhouse and PricewaterhouseCoopers, working on global
audits of large financial services clients and rising to global
banking leader.
In 2003, he was asked to join Freddie Mac, the
US government’s residential mortgage finance agency, as chief
financial officer after it announced financial reporting problems.
There he led the company’s restatement and related improvements to
its financial reporting and disclosure practices.
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By GlobalDataBaumann replaces former chief auditor
Thomas Ray, who left the board in early March to return to the
private sector. Baumann has been with the PCAOB since 2006 as
director of research and analysis. He joined the watchdog to have a
chance to influence the reliability of financial reporting, the
area he had worked in for 36 years. As chief auditor, Baumann’s
main responsibility will be to advise the PCAOB on establishing
auditing and related professional standards.
Although the subprime dramas have only been in
the public consciousness since late 2007, Baumann says he started
seeing issues around subprime mortgages emerging in early 2007. He
also experienced problems with valuing complex securities during
his time at Freddie Mac and had a sense that FASB 157 could be a
challenge as markets became less liquid.
To tackle these issues his office has
published several practice notes. The first, on fair value, came
out in 2007. The second, about auditing in the current economic
environment, was produced in December last year.
The audit veteran says preparers and auditors
of financial reports are probably facing as tough a time in 2008
and 2009 as he can imagine them ever facing.
“It is just a very challenging time to assess
impairment, to value assets, to assess reliability of receivables
and inventories, the issue of going concern for many companies,” he
says.
Baumann is careful not to be drawn into
commenting on the pressures being exerted on the US Financial
Accounting Standards Board to bend fair value accounting rules.
He notes that the PCAOB’s job is to make sure
auditing standards are clear so that auditors are appropriately
auditing against the accounting standards.
Baumann says the PCAOB’s December 2008
practice note gave a good outline of the audit risks brought on by
the financial crisis, but there are a number of other issues on the
board’s radar.
It recently issued a suite of risk assessment
standards for comment and is assessing feedback on engagement
quality reviews. It also recently sought comment on an updated
standard on audit confirmations.
On top of all this, Baumann is keen to focus
on taking on board the final recommendations of the US Treasury’s
advisory committee on the auditing profession and increasing
international co-operation with global standard setters.
“We want to make sure we have very close
co-operation. Obviously the PCAOB’s and International Auditing and
Assurance Standards Board’s standards have developed on their own
separate paths, but going forward we want to make sure we both know
what we are each doing,” he says.
