PCAOB Plan on Naming Audit Partner Is a ‘Small Ball’ Advance for Investors
“Small Ball” is a baseball term used to describe a strategy whereby a team utilizes small situational tactics like speed, sacrifice plays, and hit-and-run plays to put players on base and score runs. The idea is that wins can come through very small advances on the field in contrast to the big home runs at bat.
CFA Institute has been tracking the Public Company Accounting Oversight Board’s (PCAOB) project to disclose the name of the engagement partner on the face of the auditor’s report, which is already common practice in many jurisdictions throughout the world. The PCAOB’s objective is to improve transparency over the external audit which would also lead to enhanced audit quality — a welcome development for investors and other users of audited financial statements.
As recently reported by the Wall Street Journal’s Michael Rapoport, the PCAOB seems prepared to give audit firms the option to disclose the name of the audit engagement partner in a newly created form to be filed with the PCAOB and accessible by the public. This is in contrast to mandating disclosure of the engagement partner’s name on the face of the auditor’s report in its original proposal — what investors have consistently requested. And, what I might add, has been strongly opposed by the audit profession. In fact, the audit profession suggested that the existing PCAOB Form 2 was a convenient and transparent means of disclosing the audit engagement partner’s name, which CFA Institute, in a related blog post, pointed out was anything but convenient and transparent. It appears that the PCAOB took notice of this complexity and may now suggest an alternative form as a compromise.
Investors and others have repeatedly supported disclosing the name of the engagement partner on the face of the audit opinion as a means of transparency that would lead to enhanced audit quality. But it may be that investors will have to accept a “small ball” advance, to use a baseball analogy — it would provide the disclosure, but without the desired effect of heightening the engagement partner’s sense of accountability and transparency.
Perhaps eventually investors will get the big game-winning run in the form of a new rule and full disclosure on the face of the auditor’s report.
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