After a little more than two years on the job, Public Company Accounting Oversight Board chairman William J. McDonough announced that he will resign his position Nov. 30 or when a successor is in place, whichever is sooner.

McDonough, former president of the New York Federal Reserve, was tapped by William Donaldson, then-chairman of the Securities and Exchange Commission, to head the oversight body in June 2003, shortly after its creation by the Sarbanes-Oxley Act.

The board, which got off to a rocky start after the fumbled appointment of William H. Webster, was formed to oversee the accounting firms that audit public companies following the corporate scandals at Enron, WorldCom and others. Webster stepped down as head of the PCAOB after it was disclosed he headed the audit committee of a technology company under investigation for accounting irregularities. The skirmish that resulted was one of many incidents that eventually led to the resignation of former SEC Chairman Harvey Pitt.

McDonough

“The PCAOB is now a vibrant institution with an outstanding board and a superb, highly dedicated staff of almost 400 people,” said McDonough, who was employee No. 42 on the PCAOB’s payroll. “The supervisory process that we have adopted is working well, implemented by the adoption of auditing standards that make sense and an inspection process that helps auditors realize they must improve their practices to win back the support of the public. The firms know that public confidence is won most quickly and effectively through their own efforts, helped and prodded when necessary by the PCAOB.”

McDonough added, “Productive working relationships are being established as well with a variety of other countries for cooperation in dealing with overseas accounting firms auditing non-U.S. issuers of securities in American markets. I have full confidence that the team of which I have felt honored to be part will rise to ever greater heights.”

McDonough, 71, said he has no plans to retire. “I have a wide range of interests in corporate governance, finance and international affairs and will explore one or a variety of activities in those fields; I enjoy perfect health and have not the slightest interest in retiring, now or ever,” he said in a statement issued last Friday.

Leaders of the business community lauded McDonough’s accomplishments during his two plus years policing public company auditors.

NOTEWORTHY COMMENTS

Below are noteworthy excerpts from speeches and testimony delivered by outgoing PCAOB Chairman William McDonough during his tenure:

To Directors, On Curbing Executive Pay, (Oct. 2003)

As corporate directors, you should think long and hard about the compensation

of the executives who head the corporation you are sworn to protect.

In an ideal world today, every CEO would come to you board members and ask

that you re-examine executive compensation, starting with his or her own pay.

What made sense two or three years ago may not make sense today.

If the CEO doesn't ask for a re-examination, I would urge you board members to

undertake the re-examination yourselves.

And if the pay should be rightfully reduced, what is the worst that can happen?

An insulted CEO resigns or takes early retirement. He or she has the burden of

finding new work. You as directors—as fiduciaries of your corporation—have

the satisfaction of having said to investors, to the public, to the world that THIS is

what this job is worth.

I don't mean to oversimplify the upheaval that such a course of action would

entail. But we have to start somewhere, and we have to start soon.

Accountability—not just to investors, but to the public at large—is what we must

be about.

Delivered By McDonough To National Association Of Corporate Directors, Oct. 20, 2003,

Washington, D.C.

Big Four Lack Thorough Documentation, (June 2004)

In that regard, we have also learned that there is tremendous value in reviewing audit engagements, particularly with respect to inspections of larger firms. As one would expect of sophisticated organizations, each of the firms has developed multiple volumes of quality-control policies, but individual engagements are the litmus test for whether the firms are in fact conducting high quality audits. Although we only reviewed a small number of engagements in 2003, we identified significant audit and accounting issues. As we examine even more engagements in the future, we expect the prospect of scrutiny in our inspections to alter the relative risks and rewards to individual engagement partners who might otherwise consider shortcutting audit steps or bending to pressures to please clients.

Our inspections also provide valuable information about the need for enhanced standards. For example, although the limited number of engagements reviewed in 2003 prevented the Board from drawing conclusions about systemic deficiencies in audits, we formed a concern that auditors may place insufficient emphasis on the importance of thorough documentation of audit work. The Act expressly required us to adopt an auditing standard on documentation, and we began work on such a standard while we were conducting our limited procedures. We were able to use knowledge about existing documentation practices that we gained in our limited inspections to develop the new standard. We expect this new standard to drive significant improvements in audit quality, and we intend to monitor these improvements in future inspections.

Before House Subcommittee On Capital Markets, Insurance And Government Sponsored Enterprises, June 24, 2004

"Bill McDonough has done an outstanding job as the chairman of the PCAOB,” SEC Chairman Christopher Cox said, adding that McDonough’s experience at the Federal Reserve Bank of New York “amply prepared him for the pathbreaking work that he took on in June 2003. He has provided superb leadership at a critical time to our nation's investors, capital markets, and public companies, as well as the accounting firms that audit them.”

"It has been an honor to work with Chairman McDonough over the past two years on matters of extreme importance not only to auditors but also to the integrity of our securities markets,” outgoing SEC chief accountant Donald Nicolaisen said. “The credibility that investors place in companies' financial statements depends in large part on the work, ethics and independence of the men and women who perform a critical examination of those statements during the audit process. When Chairman McDonough took office investor confidence in that audit process was at its low ebb and he has led the efforts to establish a regulatory system that assures investors that auditors place investors' interests above all other interests or concerns."

“Bill McDonough has demonstrated superb leadership skills during his tenure as chairman of the PCAOB,” said Barry Melancon, president and chief executive of the American Institute of Certified Public Accountants. “I have tremendous respect for him. He’s created a well-respected organization that has been fundamental to rebuilding investor confidence. I, more than most, understand the difficult job he had to build PCAOB from scratch to address standards, inspection and enforcement. He's done a tremendous job. He’s been open to listening to suggestions from the AICPA and investors as the PCAOB has put in place rules governing audits of public companies and inspections of firms auditing those companies. His well-reasoned leadership will be missed.”

Lynn Turner, former SEC chief accountant who is now head of research at Glass Lewis & Co., said McDonough “has done an excellent job of establishing the credibility of the PCAOB as its initial leader. No doubt he will leave big shoes to fill for his successor.”

McDonough will continue to serve as chairman of the Investments Committee of the United Nations Joint Staff Pension Fund, chairman of the Review Group on the Organization of Financial Sector and Capital Markets at the International Monetary Fund and a member of the board of the New York Philharmonic.

According to a PCAOB spokesperson, the SEC is responsible for naming a successor to McDonough. The SEC had no comment on who might be included on the “short list” for the position, but—as Compliance Week has reported over the last few months—the position is one of many that the Commission has been forced to replace. Related coverage on SEC turnover is available from the box above.