At a time when public company preparers and audit committees are sorely in need of more guidance regarding how the Public Company Accounting Oversight Board interprets its Auditing Standard No. 5, Internal Controls over Financial Reporting (“ICFR”), the only guidance the PCAOB has to offer corporate America is, “talk to your auditors.” This is hardly a satisfactory response, given the tension that exists between auditors and their clients over what is required by the PCAOB to be ICFR-compliant. The PCAOB’s approach has made it difficult for the audit firms to get management buy-in to the PCAOB’s rigorous expectations for ICFR, mainly because management has not heard the PCAOB’s expectations directly from the PCAOB.
There are also significant dollars at stake here. A November 2016 report by Audit Analytics identified 2,169 accelerated filers who have reported audit fees in their proxy statements without interruption since 2002 (out of a total population of 4,003 accelerated filers at June 30, 2016). Audit Analytics reported that audit fees for these 2,169 companies grew from $3.7 billion in 2002 to $9.2 billion in 2015! ICFR most certainly accounts for the lion’s share of this increase. Compliance Week also reported earlier this summer on a Protiviti survey showing that a majority of companies had experienced a greater than 10% increase in hours devoted to Sarbanes-Oxley compliance. The rising compliance costs are driving some companies to leave the Big Four to reduce their compliance costs or exit the public markets to avoid the ICFR burden altogether.
