March 2, 2012
An Executive Pay Sleeper? The PCAOB’s Related Parties Proposed Auditing Standard
– Broc Romanek, CompensationStandards.com
On Tuesday, the PCAOB issued a proposed auditing standard that would change how an auditor evaluated a client’s identification of, accounting for, and disclosure about its relationships and transactions with related parties. As noted in this Towers Watson alert, this proposal could bring added involvement of independent auditors into executive pay decisions. Under this proposal, a company’s auditor would have to review its client’s pay programs and determine if they might encourage excessive risk-taking.
I haven’t read the proposal yet myself, but it seems that going down that slippery slope, might it be possible that an auditor would say to a company, “too risky, we can’t sign off on the financials” – so auditors could possibly play a role of essentially pre-approving pay programs? Comments are due by May 15th.