Analyze This

Jason Lawson so enjoys diving into the details of public company audits that he made a career of it as a partner in the Woodland Hills office of national accounting firm Moss Adams LLP. Add in the far reaching implications of the Sarbanes-Oxley Act and Lawson found himself getting even deeper into the finances of his client companies. Sarbanes-Oxley was passed in 2002 in response to accounting scandals at Enron Corp., WorldCom and other large public companies. The act created new regulations to improve auditing procedures and accountability. At the time the Sarbanes-Oxley regulations were adopted, Lawson was on a two-year fellowship at the Securities and Exchange Commission in Washington, D.C. That experience proved to be valuable once Lawson returned to Moss Adams and began audit work again. “There is a certain level of credibility having worked at the SEC when you sit in the boardroom and our clients have appreciated that,” he said. Question: What has doing Sarbanes-Oxley work meant for you professionally? Answer: This is the nerdy part. I actually enjoy auditing. If I wasn’t a professional athlete, this is what I see myself doing. Given that I don’t have the height, speed or strength to be a professional athlete, I enjoy this. When I started in the profession I enjoyed getting to know a company’s policies and procedures to ensure they were meeting whatever financial reporting objectives they assert they do. If you throw in Sarbanes-Oxley for some of us nerdy auditors, it’s like steroids. You need to do more auditing. You need to look at more evidence. There are more rules to comply with. Once you get through the vocabulary and confusion for a particular rule, it has helped me enjoy the profession and the career more. Is there anything in your background that contributed to you doing audit work? I think it’s the analytical mind-set that enjoys that environment. It’s just like if you were an investigator or detective. You take a crime scene or dispute and try to interpret those rules and regulations based on those facts and circumstances to come up with an informed, objective conclusion. I view that’s what we do. We take the financial rules and regulations and apply it to our clients’ business situation and use our professional judgment to arrive at our conclusion in terms of whether there are deficiencies. How else has Sarbanes Oxley impacted your career? With more stringent rules on independence and conflict of interest, accounting firms had to seriously think about can we continue to do consulting work for clients. In many cases we had to say no. For me personally, I grew up in the auditing profession and you take away the temptation, the opportunity to say, ‘I want to be your auditor and I want to be your consultant,’ it steers me back to the fundamentals of making sure I do my audit right. That’s our mandate as CPA firms in terms of why we are licensed. We can sign those auditing opinions. A consulting firm cannot. That has had an impact personally and for most people in the profession who are auditors. Tell me about the SEC fellowship. From a career perspective I was tired of working long hours. The career needed a little bit of a pause. But I enjoyed the technical aspects of the job. Our firm looked around for an audit senior manager who was more technically bent and would enjoy learning about SEC rules and regulations in a concentrated two-year fellowship. They approached me. I didn’t initiate it. I went to work at the SEC from 2003 to 2005. How was that experience? I thought it made perfect sense. I got to stay plugged in to the profession. I got to take a bit of a pause. We had just had our first child that year. It was nice to spend more normal family time in the evenings and still have my foot in the profession as it related to accounting and auditing. How have you applied what you learned there to your job now? I went into the Division of Corporation and Finance. That was more practical for what I wanted to do when I came back to the auditing profession. The Division of Corporation and Finance are the ones that review all the filings of public companies. They give comments to the CFOs and the CEOs. I got a great experience looking at a ton of registrants over a concentrated period of time. That helped me on this end. When I sit with an audit committee or a CFO or CEO, there is comfort level. I can advise and give input to our clients in terms of red flags, warnings. There is a certain level of credibility having worked at the SEC when you sit in the boardroom and our clients have appreciated that. What types of companies do you work with when it comes to the regulations? In terms of the amount of billable time it is with the large accelerated (companies), greater than $750 million market capitalization (or total value of all the shares in the company). The nature of the audit fee would be larger with those registrants compared to the smaller ones, so the number of hours that engage a partner would be significantly more. Once you returned from the time at the SEC and doing the Sarbanes-Oxley work full time, were you working more hours? Absolutely. I think most people who worked on public company audits would agree that 2002 through the next several years we were working a lot more hours. And something different was it was throughout the year. The auditing tended to have a seasonality to it. You would work hard in January, February, March and maybe a little bit in April. For the most part, for your calendar-year clients you didn’t interact with them as much as you do now because (with) the expectations was we were just asked to have more responsibility in terms of how we came up with our audit opinions. These days we are asked to do two opinions, one on the financial statement and second on the internal controls and whether those are effective. Has it done what it was intended do? Overall, yes. When it comes to the main parts, there are three that standout. There is section 404 , the elephant in the room on that act. 404 is where all the hubbub of Sarbanes-Oxley is. That deals with the internal controls. 404 has improved a registrant’s awareness and accuracy of its financial reporting based on policies and procedures it has in place. Then there is Section 302 and 906. 302 deals with executives signing off quarterly and annual disclosures that they are accurate. 906 deals more with potential criminal liability for signing off on certifications you’re not supposed to. What about the auditor’s responsibilities when it comes to the 404 rules? I think that definitely has served its intended purpose and improved the audit quality. In order for that part of the act to do what it’s supposed to do, you need an enforcement watchdog and that’s the Public Company Accounting Oversight Board. Once that was set up, absolutely the purpose of the watchdog to ensure that the overall audit quality has improved definitely has served its purpose. Did it take getting used to the oversight board? Absolutely. The inspection environment before Sarbanes-Oxley Act was more reliant on two sources. One, within the firm; and two, peer inspections. With a third-party watchdog who’s not in the profession, who has no clients, that’s a totally different tone than what was before in terms of the inspection process. Are investors better protected now? If you were to rewind the clock and go to 2000 and 2001 when Enron and Worldcom were at the peak of the news, had 404 been in place, would it have prevented those companies from the scandals that were in place? It would definitely be more likely had that section (404) of Sarbanes-Oxley been implemented sooner. There is higher likelihood those types of weaknesses in controls would have been disclosed to the investor world. You mentioned earlier wanting to have been a professional athlete. So what sport would you have played? I would have loved to play professional football. I did freshman football but I was too small. I was third or fourth string. I enjoy the sport.