Amid reports that the Securities and Exchange Commission might be looking to replace its top audit regulator, a group of heavy hitters in investor advocacy and corporate governance are lobbying the SEC to stay the course.
SEC Chair Mary Jo White told reporters recently that the SEC is considering outside candidates to fill the chair at the Public Company Accounting Oversight Board when James Doty’s term expires later this year. The SEC has already reappointed PCAOB member Jay Hanson, who joined the board with Doty and Lewis Ferguson in January 2011. Ferguson is reportedly one of a handful of candidates the SEC might consider to replace Doty.
Nearly 30 individuals with heavy credentials in financial reporting from the SEC, PCAOB and numerous other policymaking groups fired off a letter to White and her fellow commissioners stumping for Doty’s reappointment. They credit Doty with driving an agenda to improve audit quality “that is informed by the best possible evidence and economic analysis.”
The group of supporters say Doty’s leadership has led to improved oversight of auditors through improved inspections capacity, “substantive projects” on issues that contribute to lower quality auditing, “significant effort” to improve audit quality through standard setting, enhanced inspection reporting, better use of economic analysis to support PCAOB initiatives, and outreach to audit committees and academics.
Meanwhile, at a recent public gathering of its Investor Advisory Group, Doty said he was prepared to meet with the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness, but he wanted the chamber to produce preparers who could discuss their own direct experiences that reflect the complaints the chamber outlined in a 19-page letter calling on the PCAOB to reconsider its inspections approach.
“The ground rules for meetings is we should have people who had actually experienced the issues being discussed (in the letter),” Doty said. “Hearsay is not helpful. We want to know where preparers really have been engaged with auditors and have incidents and details to report that should cause us, the regulators, or the audit firms to consider the process of internal control auditing.”
The SEC has not said why it might replace Doty, but members of its staff openly chided Doty late last year to step up the pace of standard-setting and focus more on audit practice issues with improvements to auditing standards. Many of today’s auditing standards were adopted by the PCAOB as interim standards when the board was formed in 2003 under Sarbanes-Oxley. Those standards were written by the profession itself when auditors were self-regulated.
SEC Chief Accountant James Schnurr said in December he wanted to see the PCAOB move forward on projects that “for quite some time” have been on the board’s standard setting agenda. “When you look at the number of projects that have been on the agenda for such a long period of time, to me that raises the question of whether or not there’s an underlying problem in the standard setting process,” he said.
Schnurr said the PCAOB has heard “over the last several years” from numerous SEC leaders that the pace of standard setting is too slow. “Notwithstanding these efforts, some of the most important projects to update auditing and quality control standards that are on the PCAOB’s agenda simply have been moving too slowly,” he said.
The letter supporting Doty addressed that point. “We believe it is important that the PCAOB has a chair who enables and continues its current agenda,” they wrote. “James Doty’s vision and agenda have advanced the mission of the SEC and PCAOB to oversee and improve audit quality, and in our opinion, he has been an exemplary public servant. Many of the initiatives in his agenda inherently take time to implement. We therefore strongly support his continued leadership for a second term to allow these initiatives to come to fruition.”
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