PCAOB board member blasts agenda change
J. Robert Brown, a member of the Public Company Accounting Oversight Board, heavily criticized recent moves by the PCAOB to strip down its research and standard-setting agendas without proper consultation, in an unusual public statement after a series of upheavals at the board.
The statement, dated Oct. 13, pointed to the publication last month by the PCAOB of its updated research and standard-setting agendas. He noted that the Securities and Exchange Commission appointed an entirely new board in late 2017, giving the five new members, which included him, the opportunity to develop a “PCAOB 2.0.”
In 2018, the PCAOB issued a strategic plan that Brown said “promised innovative oversight,” including its approach to writing auditing standards.
“Consistent with our statutory mission, we explicitly committed, in doing so, to consider the expectations of investors,” he said. “Last month, the PCAOB published its updated research and standard-setting agendas that will be its focus of attention and resources for the next 12 to 18 months. The agendas do not, however, reflect the promises made in the strategic plan. With respect to investor expectations, the revised agendas mostly disregard them. The agendas removed matters repeatedly identified by investors as important — matters that have only grown in significance in a COVID-19 environment. What remains largely overlaps with the priorities of an international standard-setter. While these priorities may be good ones, the goal of global alignment and coordination should not take precedence over the expressed interests of U.S. investors.”
He said the revised agenda is not particularly innovative either. “As for innovative oversight, the revised agendas mostly leave in place the remaining legacy standards adopted by the PCAOB on an ‘interim’ basis in 2003,” said Brown. “These standards were written by the audit profession during the era of self-regulation, with little input from the public and were sharply criticized during congressional hearings.”
Besides the changes in board members under Chairman William Duhnke, the PCAOB has also replaced many of its top officials in recent years and has held few public meetings, prompting questions from Senate Democrats (see story). Last year, the board replaced board member Kathleen Hamm with Rebekah Goshorn Jurata, a former White House aide (see story). The PCAOB’s outside advisory groups, the Standing Advisory Group and Investor Advisory Group, have not held meetings lately.
Brown criticized this lack of outside consultation in his statement. “With respect to the September 2020 revised agendas, there have been no public meetings of our advisory groups to discuss these changes or any other standard-setting matters,” he said. “Rather than reflecting the interests of investors, the revised agendas remove the very matters that investors have repeatedly identified as important.”
The PCAOB did not respond to a request for comment.
Among the matters Brown cited as having been removed from the agendas were projects on auditing non-GAAP measures, the auditor’s consideration of noncompliance with laws and regulations, and consideration of an entity’s ability to continue as a going concern.
“The impact of the COVID-19 pandemic on the global economy has reconfirmed the importance of this area and the need to ensure that requirements under the standard are sufficient to ensure proper treatment and disclosure by auditors,” said Brown. “The revised agendas do not adequately explain the reasons for the removal of these items or include any discussion of how investor concerns that caused them to be added to the agendas in the first place were addressed. Moreover, their removal and relegation to a status of ‘monitor[ing] relevant developments’ is problematic in light of the particular importance of these areas in an economic environment deeply impacted by the continuing pandemic.”
Brown also complained that the PCAOB seemed to be shifting its standard-setting role to international standard-setters, pointing to a concept release last December on a quality control standard in which the PCAOB said it would use a standard from the International Auditing and Assurance Standards Board as its starting point.
“This apparent decision to give priority to other standard-setters, as suggested in the revised agendas, deserves a full public airing rather than an isolated reference in our December 2019 Concept Release,” said Brown.
He complained that the PCAOB is not giving enough attention to the views of investors or other outside stakeholders.
“There are very real consequences to the capital markets resulting from the lack of transparency around the decisions made in the revised standard-setting and research agendas and the failure to adequately take investor views into account through public meetings and public comment,” said Brown. “The PCAOB faces a serious transparency problem. Other than the meetings of our advisory groups, we rarely hold roundtables or other public meetings designed to debate, discuss, and obtain feedback on matters of importance to the PCAOB's mission. Lack of transparency was a concern in the era of self-regulation and has yet to be fully remedied. Without adequate transparency, there cannot be adequate accountability.”
The PCAOB was created as part of the Sarbanes-Oxley Act of 2002, which came in reaction to a series of accounting scandals involving companies like Enron and WorldCom in the early 2000s when auditing firms were largely regulated by the industry itself.