The Public Company Accounting Oversight Board has scheduled a meeting for next Tuesday to vote on new rules that would require auditing firms to disclose the name of the engagement partner and other accounting firms that participated in an audit.
The rules under consideration would require disclosure of the name of the audit engagement partner on a new PCAOB form, Auditor Reporting of Certain Audit Participants, or Form AP. Firms would also be required to use Form AP to disclose information about other accounting firms participating in an audit, including the names of the firms and the extent of their participation.
This rulemaking initiative began with a concept release in July 2009. Most recently, the PCAOB issued a supplemental request for comment on Form AP on June 30, 2015. Additional information on this rulemaking is available on the PCAOB website under Rulemaking Docket 029.
“We know, both from our own oversight and from our solicitation of views, that the engagement partner has singular, albeit not complete, influence over the quality of an audit,” said PCAOB Chairman James Doty during a speech Wednesday at the American Institute of CPAs’ National Conference on Current SEC and PCAOB Developments. “Quality among engagements varies considerably, especially at the largest firms made up of tens of thousands of professionals. Disclosure will help investors to assess that quality. Moreover, disclosure will help strong engagement partners, who demonstrate skill in counteracting counter-productive incentives and bias, to distinguish themselves in the market. This kind of disclosure bodes well for good auditors.”
Doty noted that the PCAOB has seen multi-national audits with inconsistent quality among their participating affiliates. “Transparency as to the firms involved should not only help investors distinguish reliability, but it should enhance networks' incentives to ensure that they pick high quality local firms with whom to affiliate,” he said. “We have also seen instances where most of the audit work was done by a firm other than the one signing the audit report. Investors should know who really did the audit.”
Doty said the PCAOB has been sensitive to auditors' concerns of a risk of increased personal liability, especially if they are required to sign the audit report, or even simply put their name in the audit report. “It isn't the goal of the proposal to increase personal liability, but rather to give investors a means, over time, of discerning the quality of the audit through its leadership,” he said. “Again, there is the nexus of information and conduct: I believe the knowledge that there is public information about who led or participated in the audit will enhance accountability when it may still be needed. Therefore, in our June supplemental request for comment, we took up the comments urging us to develop a form for auditors to report the information other than in the audit report itself. We’ve been deliberating on the comments received, and I believe we are now in a position to adopt a final rule next week.”
The meeting is open to the public and will take place in the PCAOB meeting room at 1666 K Street NW, Washington, D.C., at 10:00 AM on December 15. It will be webcast live via a link on the PCAOB website and available in the recordings archive the next day.
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