|DATE:||Oct. 11, 2011|
|SPEAKER:||James R. Doty, Chairman|
|EVENT:||PCAOB Open Board Meeting|
The Sarbanes-Oxley Act of 2002 charged the PCAOB with protecting the interests of investors and furthering the public interest in the preparation of informative, accurate and independent audit reports. In furtherance of that mission, I support proposing to amend the standard auditor's report to include disclosure of the engagement partner assigned to the audit.
The names of key management executives, not to mention corporate board members, have long been disclosed. The names of audit engagement partners are also disclosed in many countries, but to this point not in the United States.
I fail to see why shareholders in BNP Paribas, listed on the Euronext Paris exchange, should be able to see the name of the engagement partner in the audit report, but shareholders in Citigroup, listed on the New York Stock Exchange should not. Indeed, the names of engagement partners for some European companies that are listed on the NYSE are disclosed in U.S. filings. Why are shareholders in France Telecom to be favored over shareholders in AT&T?
The project has come a long way since the Board first tabled questions, in the form of the July 2009 concept release, on whether the PCAOB should require an engagement partner to sign his or her name on the audit report.
I understand the objections we received to requiring engagement partner signature, most notably that the change could unintentionally imply a reduction in the firm's overall responsibility for the audit and the audit opinion. Our audit standards set forth the responsibilities of the auditor. This proposal does not change the responsibilities of the audit firm or the engagement partner. In the view of thoughtful commenters, a signature requirement could detract, to the public's view, from the responsibility of the audit firm.
This leads to the second part of today's proposal, to provide investors disclosure about other accounting firms and certain other participants in the audit. On large, multi-national audits, multiple partners in multiple offices, and even multiple firms, may participate and share responsibility for various aspects of the audit.
For many large, multi-national companies, a significant portion of the audit may be conducted abroad — even half or more of the total audit hours. In theory, when a networked firm signs the opinion, the audit is supposed to be seamless and of consistently high quality. In practice, that may or may not be the case. Shining a light on the composition of the multi-national audit should reward consistent high quality where delivered.
I am concerned about investor awareness. I have been surprised to encounter many savvy business people and senior policy makers who are unaware of the fact that an audit report that is signed by a large U.S. firm may be based, in large part, on the work of affiliated firms. Such firms are generally completely separate legal entities in other countries.
Enhanced transparency into the composition of cross-border audits should help investors gain a better understanding of how an audit was conducted and make more informed decisions about how to use the audit report.
I look forward to comment on the proposal, including information about the potential cost of the proposal. We will have a long comment period to allow for robust analysis of the proposal and constructive suggestions about any improvements we should make.
Before I close, I would like to thank the SEC staff for their insight and assistance. The proposal benefits from extensive consultation and discussion with the SEC staff, and their contribution should be acknowledged.