At first, the names of audit engagement partners disclosed in public company audit reports might not mean much to investors, PCAOB Associate Chief Auditor Jessica Watts said as she described a new board proposal.
Initially, little public information about engagement partners would be available, Watts said, under a PCAOB reproposal that would require disclosure of the identity of the engagement partner in the audit report.
But Watts said the PCAOB has received feedback indicating that over time, a body of information about the engagement partner’s history would be developed.
“For example, the disclosure of the name of the engagement partner, combined with other information compiled over time, could enable [investors] to research the number, size, and nature of companies and industries in which the partner served as the engagement partner,” Watts said.
The PCAOB’s reproposal also would require disclosure in the audit report of the names, locations, and extent of participation of other audit firms involved in the audit, as well as the extent of participation of other persons (whether individuals or companies) not employed by the auditor who performed procedures on the audit. The reproposal is available at tinyurl.com/pxqwpmz.
Cindy Fornelli, executive director of the Center for Audit Quality (CAQ)—which is affiliated with the AICPA—said in a statement that the CAQ supports the PCAOB’s efforts to increase transparency in the audit but does not believe the auditor’s report is the appropriate place to identify the engagement partner.
“Engagement partners already are held accountable to multiple parties including their firms, audit committees, regulators, and investors,” Fornelli said. “There are also important contributions to the audit made by many others beyond the engagement partner, including the firms’ comprehensive quality-control systems.”
The PCAOB is inviting public comment through Feb. 3, and PCAOB Chairman James Doty said he would like the board to decide on a standard by the summer of 2014. Comments can be made at the board’s website at pcaobus.org.
The board also adopted amendments that conform PCAOB rules and forms to requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act, P.L. 111-203. The amendments established PCAOB oversight for audits of brokers and dealers.
A PCAOB report instructs audit firms to take steps to ensure that engagement quality reviews detect the audit deficiencies they are meant to identify.
Although firms’ methodologies reviewed by the PCAOB were generally consistent with the requirements of Auditing Standard No. 7, Engagement Quality Review, the report says a number of audit deficiencies discovered by board inspectors should have been identified by the engagement quality reviewer.
Auditing Standard No. 7 requires an engagement quality review for every audit engagement. The report is available at tinyurl.com/ojbvgfx.
A consortium of U.S. governance organizations is calling on public company audit committees to enhance reporting about their activities.
Increasing transparency about the audit committee’s roles and responsibilities could increase investor confidence, according to the organizations’ new Enhancing the Audit Committee Report: A Call to Action.
The Center for Audit Quality (CAQ), which is affiliated with the AICPA, is an author of the report, which is available at tinyurl.com/kn4wepu. The other partners on the project were the National Association of Corporate Directors; NYSE Governance Services, Corporate Board Member; Tapestry Networks; The Directors’ Council; and the Association of Audit Committee Members.
The report lists 19 companies, including Apple, Caterpillar, Citigroup, Coca-Cola, General Electric, McDonald’s, Morgan Stanley, and Safeway, as companies whose proxy statements may contain “useful examples of enhanced audit committee disclosures.”
The report suggests that audit committees can use reporting to clarify the scope of their duties and clearly define the audit committee’s composition.
Regulators are asking whether the increasing provision of nonaudit and consulting services by audit firms poses risks to audit quality, and the PCAOB plans a formal examination of the issue in 2014.
The PCAOB plans to hold round-table discussions on the issue next year with audit firm leaders and other stakeholders, board Chairman James Doty said at the AICPA Conference on Current SEC and PCAOB Developments in December.
Doty said the PCAOB is interested in examining the implications of consulting arrangements on the independence of the audit function. According to Doty, audit firms have said that the acquisition and ownership of nonaudit expertise benefits and supports audit expertise. He said those benefits need to be continually reexamined by firms and articulated.
The PCAOB posted to its website the criteria its inspectors consider when evaluating an audit firm’s efforts to address inspection report findings. If remediation efforts fail to satisfy the board within 12 months, the report that contains the criticism may be made public.
The full criteria are available at tinyurl.com/kjg6mmr.