As the economic crisis calls into question the financial statements of banks and companies, the head of Ernst & Young advocated greater regulation of all types of auditing firms.
Ernst & Young chairman and CEO James Turley said in a speech at the Commonwealth Club in San Francisco that the independent oversight provided by the Public Company Accounting Oversight Board should extend beyond only firms that audit public companies. The Sarbanes-Oxley Act created the PCAOB in 2002, but its mandate was limited to examining firms that service public entities.
“While everyone in the U.S. accounting profession wasn’t entirely keen on the idea of an independent regulatory authority at the time it was proposed, we embraced the change,” said Turley. “Today, that authority … is recognized as having strengthened the quality of audits at public companies. In fact, the importance of independent oversight to audit quality has been widely recognized and the PCAOB now has counterparts in many countries around the world. However, even in the United States, not every auditor of public-interest entities needs to be registered with and overseen by the PCAOB.”
Turley wants smaller audit firms to be regulated as well. “There are a range of entities which, by virtue of their nature of activities or size (such as holding billions of dollars of investors’ money), operate in a sphere where there are public-interest implications,” he said. “Examples include non-public financial institutions and insurance companies, broker/dealers, investment advisors and pension funds, at least those of a certain size. Recognizing the benefits of independent oversight by the PCAOB and its global counterparts, I believe we should challenge the remaining vestiges of audit profession self-regulation as it relates to auditors of these types of public-interest entities across the globe.”
Turley argued for expansion of independent oversight of audit firms to satisfy investor demands. “As we have seen in the United States, Europe and elsewhere, independent oversight can enhance the quality of audits and promote investor confidence,” he said. “But only about half of the G20 countries have auditor oversight bodies that are independent of the profession and members of the International Forum of Independent Audit Regulators. While we can’t flip a switch, we can and should commit to supporting consistent and independent oversight everywhere as warranted by the public interest, to improve audit quality and support global economic activity and regulatory cooperation.”
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