DATE: March 29, 2010
SPEAKER: Daniel L. Goelzer, Acting Chairman
EVENT: PCAOB Open Board Meeting
LOCATION: Washington, DC
A fundamental objective of the Sarbanes-Oxley Act is to strengthen the role of the audit committee by placing it squarely at the center of the relationship between a public company and its auditor.Â The provisions of the Act that deal with the committeeâ€™s oversight of the audit are predicated on the idea that independent, informed, and pro-active audit committees can and should be one of the keys to protecting the interests of public company investors.Â Putting the audit committee â€“ rather than management â€“ at the intersection between the company and the auditor enables both the auditor and the audit committee do their jobs more effectively.
This objective can, however, only be realized if there is meaningful and robust dialogue between the auditor and the audit committee.Â Accordingly, the proposed standard the Board is considering today would expand and clarify the rules-of-the-road that govern auditor/audit committee communications.Â The new framework is intended to implement the Sarbanes-Oxley Actâ€™s objectives by enhancing and making more concrete the substance of these communications.Â Â Four examples stand out â€“
The proposed standard also emphasizes that communication is a two-way street.Â Of course, the Act does not provide the Board with any jurisdiction over audit committees.Â However, strengthening auditor/audit committee communications should benefit both parties.Â Â From the perspective of the auditor, the committee is likely to be aware of matters that may affect the audit, including complaints or concerns that have come to the audit committeeâ€™s attention regarding accounting or internal control matters.Â More broadly, however, it makes sense for the auditor to evaluate whether the two-way communications between committee and auditor have been open, and adequate to support the objectives of the audit.Â The auditor and audit committee have a common interest in the reliability of the companyâ€™s financial reporting, and the relationship between them should reflect that fact.Â If that is not the case, the auditor needs to think about whether the effectiveness of the audit process is jeopardized.
For these reasons, I support issuing the proposed standard for public comment.Â As more time elapses since the crises that led to the enactment of the Sarbanes-Oxley Act, it is important that auditors and audit committees not lose their focus on the importance of candid and timely communication.Â While I certainly expect that we will receive comments that will help us improve and strengthen the proposal, the standard the staff has drafted is a long step forward.
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I would like to ask a few questions in order to shed a bit more light on some aspects of the proposal.Â Before I do that, however, I want to thank all of the staff members who contributed to moving this new standard to the stage at which we are ready for public exposure and comment.Â I particularly want to acknowledge the efforts of three Office of the Chief Auditor staff members -- Jennifer Rand, Barbara Vanich and Jessica Watts.Â Â Thanks for your hard work and commitment to this important project.