Balance in Public Company Audit Priorities Important to Investors
A recent Wall Street Journal article, “SEC Presses Audit Regulator PCAOB on Priorities,” highlights cause for concern among investors. Namely, the US Securities and Exchange Commission (SEC) is suggesting that the Public Company Accounting Oversight Board (PCAOB) shift its standard-setting priorities away from transparency projects to those that focus on the details of how auditors conduct an audit. In essence the SEC wants the PCAOB to change its emphasis from efforts to reform the audit industry and provide more disclosure to investors.
Investors question why the SEC thinks this shift is necessary at a time when the PCAOB is making headway (albeit slowly) on important transparency projects. Is there something faulty with the auditing standards? Or perhaps, does the problem reside in the execution of those standards by auditors? The answers seem to be yes, and accordingly, the PCAOB has some important projects on its agenda to address these deficiencies (fair value estimates, going concern, quality control, etc.) But steering away from existing projects that address auditor transparency and disclosure by auditors (revised auditor’s report, disclosure of engagement partner, etc.) is not the answer. The PCAOB seems to have the resources to do both, and investors have been asking for these disclosure changes for years.
CFA Institute believes the direction that the PCAOB offers, under Chairman James Doty’s leadership, is a reasonable direction for improvements in audit standards. The PCAOB is on the right track in pursuing changes to the auditor’s report to provide more transparency around the audit, and also, in its efforts to disclose the name of the engagement partner responsible for the audit, both of which will increase audit quality.
The International Auditing and Assurance Standards Board completed its project on a new investor-focused audit report, which also includes a provision requiring the engagement partner’s name to appear on the face of the auditor’s report. Why shouldn’t the PCAOB do the same?
Investors believe that the PCAOB should resist pressure from the SEC to shift its focus from important transparency initiatives. Instead, the PCAOB should redouble its efforts to finalize these new standards as quickly as possible while simultaneously pursuing core improvements to existing audit standards.
If you liked this post, consider subscribing to Market Integrity Insights.
Image credit: iStockphoto.com/JDawnInk