On July 26 -- two weeks after the PCAOB sent out its notice to auditors -- the SEC issued a final rule concerning the oversight of PCAOB inspections. The rule granted the right of audit firms to ask the SEC to review PCAOB findings. The SEC can now override PCAOB decisions, on occasion.
The PCAOB was taken by surprise by the SEC's move."The Board was not consulted concerning this rule and was not aware that it would be issued yesterday," PCAOB Acting Chairman Daniel Goelzer said in July. "We are studying the Commission's release in order to understand its impact on our work." One impact seems fairly clear: Delays. Auditors say they often get caught up in issues that have little to do with a company's financial statements, and can be blamed for the collapse of a stock even when their role is positive. Kabani mentions the notorious case of Bodisen Biotech (BBCZ.PK), a reverse merger company that hit the skids in 2006 after short sellers and journalists raised key questions. The stock traded for about $20 a share in early 2006. It finally spiraled down to 12 cents last year, before recovering slightly, to about 50 cents a share recently.