One of the SEC’s Democratic commissioners, Luis A. Aguilar, took the highly unusual step of publicly dissenting from Franzel’s appointment, saying the SEC had failed to fulfill a legal requirement that appointees to the board “have a demonstrated commitment to the interests of investors.”
Franzel is a managing director at the GAO, where she has led audits of the SEC. She said she recused herself from the most recent commission audit while under consideration for the new job.
“I’ve got a long history of evaluating difficult policy issues at GAO and coming to conclusions based on evidence . . . and I will bring that same discipline” to the oversight board, Franzel said in an interview Friday.
Positions on the oversight board are highly coveted and pay private-sector salaries: $546,891.
Corporate auditors are supposed to look out for investors but have a built-in conflict of interest: They are hired and paid by the companies they audit. They have put their stamp of approval on many financial reports that turned out to be false or fraudulent, including those of mortgage giants Fannie Mae and Freddie Mac.
Many critics have said accounting firms let investors down in the run-up to the financial crisis.
Since the collapse of Arthur Andersen, the accounting industry has been dominated by four big firms: PricewaterhouseCoopers, Ernst & Young, KPMG, and Deloitte.
Franzel could help determine whether regulators make some of the biggest changes ever considered in the audit business, such as requiring companies to switch audit firms periodically.
Proponents say such a step could ensure that the books get a fresh look from people who have less of an incentive to paper over problems.
Once an audit firm has given its blessing to financial statements that contain fraud or error, revealing the problem could expose the accounting firm to legal liability.
On average, companies have used their audit firm for more than 22 years, and 16 percent have used their audit firm for at least 40 years, according Audit Analytics, whose study focused on 1,000 of the largest corporations.
In an August document seeking public comment on the idea of term limits for audit firms, the oversight board — also known as the “Peekaboo” — said it “continues to find instances in which it appears that auditors did not approach some aspect of the audit with the required independence, objectivity and professional skepticism.”
The GAO offered a different assessment.
“[W]e are not convinced that the audit quality issues identified by the PCAOB in its Concept Release are caused by a lack of auditor independence or professional objectivity,” the GAO said in a Dec. 14 letter to the board. “Even if the PCAOB could clearly establish that a lack of independence or objectivity is causing audit quality problems, it is unclear that such a problem would be prevented or mitigated by a mandatory audit firm rotation requirement.”
In an interview, Franzel said she oversaw the development of the GAO’s comment letter. But she added that there was “clearly a very serious audit problem.”
She said she wants to see the information the oversight board has gathered before reaching a conclusion about causes and solutions. She said her goals include “strengthening audits of public companies and protecting investors and the public interest.”
In dissenting from Franzel’s appointment, Aguilar said, “Although the appointee is an experienced government auditor, and I appreciate her years of service, there is nothing in the evidentiary record that reflects a commitment to the interests of investors, or a history of advocacy for investor rights.”
The SEC would not disclose how Chairman Mary L. Schapiro and the three other commissioners voted. People familiar with the process, speaking on the condition of anonymity because it played out behind closed doors, said the two Republicans opposed runner-up Joseph V. Carcello, an accounting professor at the University of Tennessee.
Carcello, who holds an academic chair named for Ernst & Young, has been an outspoken critic of audits and a leading advocate for change.
Barbara Roper, director of investor protection at the Consumer Federation of America, said Carcello clearly would have fit the role perfectly while to her Franzel was more of an unknown.
“Will she play the role of strong investor advocate that we so desperately need?” Roper said. “I have no basis on which to answer that question.”
“Being a clear advocate for investors has never been an easy route to appointment in Washington,” Roper said.