Audit regulators plan to vote by the end of the year on whether to adopt a new auditing standard that would give investors more information about exactly who is responsible for the audit opinion they rely on to make investment decisions.
The Public Company Accounting Oversight Board updated its standard setting agenda to indicate it will vote between July and December in 2014 on its transparency initiative, or a standard that would require audit firms to somehow disclose the name of the engagement partner who oversees an audit as well as other participants in the audit who are not with the principal audit firm. The proposal would allow investors to see which engagement partners are responsible for which audits, and it would help them understand the extent to which the audit firm relies on outside resources to perform the audit.
The PCAOB first issued a concept release in 2009 exploring the implications of having the engagement partner sign the audit report, an idea shot down by the audit firms and their legal counsel over concerns that it would increase their professional liability. The board proposed a standard in 2011 that would have required not the signature, but the name of the of the engagement partner, to be provided in the audit report, along with the identities of other firms or service providers who helped with the audit. The board met heavy resistance again over the liability concern, with auditors proposing at best that the engagement partner be identified in some separate filing with the PCAOB that would be accessible to investors.
The board came back with a second proposal in December 2013 that didn't back away from identifying the engagement partner in the audit report, but dissension even within the board was obvious. Board members Jay Hanson and Jeanette Franzel said they didn't object to going out for a new round of comment and feedback on the proposal, but didn't support identifying the engagement partner in the audit report because they didn't see a connection to audit quality. Franzel said she doesn't believe the academic research cited in the board's proposing release makes a link between identifying engagement partners and making them more accountable. “Many of the conclusions reached in the release are based on speculative beliefs, and therefore I cannot agree with them,” she said.
The board accepted comments on the new proposal through mid-March. “The staff is drafting an adopting release for the board's consideration that takes into account comments received on the reproposal, including comments related to liability and alternative locations for the disclosure,” the PCAOB says in its updated standard-setting agenda.