DATE: May 7, 2013
SPEAKER: James R. Doty, Chairman
EVENT: PCAOB Open Board Meeting
LOCATION: Washington, DC
Thank you for that summary of the proposed standard and amendments before us today. And thank you for your work to consider the comments we received on our February 2012 proposal and to craft refinements to improve it.
Related party transactions, and significant transactions that are outside the normal course of business, have been a contributing factor in numerous prominent financial reporting frauds over the decades. Our reproposing release mentions a skein of financial reporting failures in this area that have resulted in significant investor losses as well as the loss of jobs at affected companies.
The newspapers are replete even now with revelations of insider and significant unusual transactions that, in the light of day, only served to delay the day of reckoning with the markets. And, as is often the case, the market reckoning comes at great cost to investors.
The proposal before the Board today would update and strengthen audit procedures in these critical areas. Reliable information undergirds market confidence and capital formation.
Once such transactions are subjected to enhanced focus and appropriate scrutiny, auditors are able, reliably, to differentiate between those transactions that have questionable business utility and those that are legitimate mechanisms to provide for financing, or asset disposition. This scrutiny can help to avert the corporate failures and job losses we read about all too often once it's too late to do so.
As with the February 2012 proposal, we have been mindful to build on our existing risk assessment standards to align this proposal with those concepts. This proposal advances that effort with further refinements.
The changes reflect our considered study of ways to make audits more efficient, more effective and integrated with the overall audit approach. We will be seeking comment on any aspect of the proposal, including on the potential economic implications of the proposal.
I look forward to the public comment on this proposal.