State Board Report
As promised by Public Company Accounting Oversight Board Chair James Doty this summer, the PCAOB has sent out another group of proposals aimed at giving investors more information about what auditors do. In PCAOB Release No. 2011-007, released on October 11, amendments are proposed to require accounting firms registered with the PCAOB to have to disclose the name of the engagement partner in the audit report and on the PCAOB Annual Report Form 2. In addition, the proposal calls for disclosure in the audit report of other accounting firms and other persons who were not employed by the auditor but who took part in the audit. Comments are due by January 9, 2012 to firstname.lastname@example.org.
In presenting the proposal, Chair Doty pointed out that the PCAOB has been discussing the need for requiring engagement partner signatures since its July 2009 concept release. Many countries require such disclosures and Mr. Doty questioned why shareholders in France should be favored over shareholders in the United States. He also said, “I am concerned about investor awareness. I have been surprised to encounter many savvy business people and senior policy makers who are unaware of the fact that an audit report that is signed by a large U.S. firm may be based, in large part, on the work of affiliated firms. Such firms are generally completely separate legal entities in other countries.”
Small U.S. accounting firms are auditing foreign companies with most of their operations in emerging markets, by contracting with accounting firms in the home countries to do significant parts of the audits, PCAOB Member Daniel L. Goelzer said. “Disclosure of participating firms would shine a light on these relationships and give investors a better idea of whose work supports the audit report they are relying on. It would also let them determine whether particular participating firms have had PCAOB inspections and, if so, what the results were.”
While the PCAOB members all supported the release of the proposals, Mr. Goelzer questioned if requiring the audit partner’s signature is needed: “Improving audit quality is certainly at the core of the Board’s mission, but the concept release comment record is mixed on whether naming engagement partners would actually have a positive impact on audit quality…In my view, the Board would need more evidence than it has now to conclude that partner identification would improve audit quality. I hope those who comment on the proposal will focus on that question.”
During the past few weeks the PCAOB has moved ahead in establishing relationships with regulators in other countries to improve oversight of foreign auditors. On October 12 they announced a cooperative arrangement with the Japan Financial Services Agency, and the Certified Public Accountants and Auditing Oversight Board of Japan. This will provide a basis for the PCAOB to conduct on-site visits to firms in Japan in close cooperation with the Japanese regulators. Then on October 31 the PCAOB entered into a cooperative agreement for the exchange of confidential information with the Israel Securities Authority. This agreement will permit the PCAOB and ISA to share confidential information about firms that operate in both countries.
- MEMBER CENTER