More than a decade after regulators began mulling how to give some transparency to investors around who actually performs public company audits, the Public Company Accounting Oversight Board expects to finalize a new disclosure requirement by the end of 2015.
In remarks to a recent meeting of the Investor Advisory Group of the PCAOB, Chairman James Doty said he is hopeful that the board is on track to “get this done by the end of the year.” He was referring to the board’s latest proposal to require audit firms to provide in a new form to be filed with the PCAOB the name of the lead partner for each audit engagement along with the identity of others outside the principal audit firm who contributed to the audit.
The Securities and Exchange Commission, meanwhile, expects to soon begin deliberating how it will proceed on its concept release exploring a host of possible ways to expand audit committee disclosures. It’s an initiative that grew in part from the heavy resistance the PCAOB met in its earliest proposals on how to require audit firms to identify engagement partners, with auditors insisting it would increase their legal liability under securities laws. The PCAOB often heard during hearings and in comment letters that any such disclosure, if it were to be required, should be made by audit committees, which are overseen by the SEC, not the PCAOB.
Doty said the PCAOB received 45 comment letters on its proposal to require auditors to name engagement partners and other key participants in the audit in a new Form AP to be filed with the PCAOB. He praised the Securities and Exchange Commission for its assistance in helping the PCAOB get around the heavy resistance to an auditor disclosure. If the PCAOB is able to finalize its new filing requirement as Doty envisions, it will stand an an example of the PCAOB’s and SEC’s coordinated efforts to oversee the audit function, he said.
SEC Chair Mary Jo White said she is “quite, quite interested” in the IAG’s feedback on the SEC’s concept release around audit committee disclosures, even after the formal comment period for the release has closed. “We have a real opportunity there to provide more meaningful, useful information to investors,” she said.
The Institute of Internal Auditors used the occasion to suggest that the “current environment is conducive” for the SEC to require all public companies to have an internal audit function. “The presence of an effective internal audit function makes an unequivocal statement about the way a company’s leadership views strong and effective risk management, internal control, and governance,” the IIA wrote.