|DATE:||Aug. 15, 2012|
|SPEAKER:||James R. Doty, Chairman|
|EVENT:||PCAOB Open Board Meeting|
The new standard on auditor communications with audit committees will become PCAOB Auditing Standard No. 16. This standard has benefited from an enormous amount of public outreach about how to enhance investor protection by providing for relevant and timely communication between the auditor and an issuer´s audit committee.
The Board first proposed an earlier version of the standard in
March 2010 and received several rounds of comment, including comment
at a public roundtable in September 2010. Then we reproposed
the standard in December 2011.
AS 16 supports the critical role of auditors and audit committees in financial reporting and corporate governance. U.S. securities markets serve a purpose that is fundamentally different from many others in the world. Our markets provide for formation of capital, and ownership, by dispersing minority interests widely, among millions of individual savers who are dependent on the preservation and growth of their investments for their savings and retirement.
This system has fueled unprecedented, lasting and distributed economic growth for three-quarters of a century. But minority ownership bears the obvious and inherent risk associated with entrusting an agent with other people´s money. It would be enormously expensive for minority investors directly to monitor management´s use of funds, not to mention inefficient, and counterproductive given the expected expertise of management and likely lack of expertise of the average share owner.
Instead, investors rely on auditors and audit committees, as intermediary agents, to attend to that risk. The audit committee directly oversees management´s reporting of the company´s financial position and results to investors. Auditors validate. Naturally, both agents should support each other´s work with an open dialogue about how to protect investors from misleading or inadequate management reports.
The PCAOB has no authority over audit committees, and through this standard we exercise no such authority. But I do believe that the standard appropriately describes the best auditor practices that we have learned from experience and advice.
I believe the standard moves the auditor´s communication with the audit committee away from compliance checklists, and decisively in the direction of meaningful, effective interchange.
We have taken care to avoid miring both the auditor and the audit committee in minutiae. If salient information is buried in abstruse detail, it would be a circumvention of the standard.
But as I said when we reproposed it, the audit committee and
auditors themselves play more of a role than the PCAOB, or any audit
standard, can in ensuring that their relationship is not a mere
compliance exercise. Any process can be reduced to a
compliance exercise. Auditors should make use of the new AS 16
to accomplish the standard´s stated purpose of enhancing audit
committee efficiency and effectiveness.