Six Degrees: The Academic Of Audit

Zoe-Vonna Palmrose, deputy chief accountant for professional practice in the Office of the Chief Accountant at the Securities and Exchange Commission (SEC), has been eyeball-deep in audit-related issues for decades.

Palmrose, currently on leave from the University of Southern California, where she was the PricewaterhouseCoopers Professor of Auditing and Professor of Accounting in the Marshall School of Business and Leventhal School of Accounting, joined the SEC in August of last year, eagerly accepting Chairman Christopher Cox's job offer. "It's very rare that an academic gets the opportunity to work in a direct way with the issues that we write and think about. Being able to work on the issues that I care a great deal about was a very important part of why I said yes to the position," she says.

Over the past several decades, Palmrose's area of research has primarily been the market for audit services. "I was very fortunate to be in a Ph.D. program at the genesis of the paradigm shift in audit services, working with people who were part of that genesis," she says. "The public policy issues related to the audit profession are the things that I started out with as part of my dissertation, and I've been fortunate enough to be able to pursue them over an academic career."

In addition to her academic work in the audit area, she also served on an SEC-initiated panel dealing with audit effectiveness in the late '90s before the formation of the Public Company Accounting Oversight Board (PCAOB) was formed and the Sarbanes-Oxley Act came into existence. "We worked for two years on an in-depth analysis of the profession and issues with respect both to the audit process and the audit environment, including governance of the profession and the self-regulatory structure and issues related to the growth of the global audit firms, which resulted in a report that was a road map for future change in the profession," she says.

She also served as a member of the American Institute of Certified Public Accountants (AICPA) task force that developed Statement on Auditing Standard No. 99, which relates to auditor responsibility in the area of fraud. "If you look at the sort of issues that I started off with related to the quality of financial reporting and auditing, they're still very salient today -- the pricing of audit services, for example, and the effect of nonaudit services on audit quality," she notes.

In her current position at the SEC, Palmrose has worked on one of the Commission's most pressing areas: improvements of the implementation of SOX Section 404. Her group, the professional practice group in the Office of the Chief Accountant, provided major input on two recent principles, risk-based SEC guidance for management and the new PCAOB standard for an audit of internal control over financial reporting (ICFR) integrated with the financial statement audit. "These are two very important initiatives," says Palmrose, "and we will continue to monitor the implementation of this ICFR guidance, considering both effectiveness and efficiency."

Palmrose, a certified public accountant (CPA), has been honored by a number of professional organizations, including the California Society of CPAs, which presented her with their accounting faculty fellow award. She also received the American Accounting Association's auditing section's distinguished service award in recognition of her significant and sustained contributions to the academic auditing profession.

When asked if she thinks that investors recognize advances in protections against financial reporting fraud, her response is strongly affirmative, particularly as they apply to audit. "One of the most important changes under SOX is the oversight role of the audit committee ... and Section 404 has made companies look more closely at their internal audit function in terms of both governance and risk management."