PCAOB Looking to Move Forward with Audit Participant Disclosure Standard
As part of a major initiative to help investors receive more information about auditors and their work for public companies, the Public Company Accounting Oversight Board (“PCAOB”) is looking to adopt rules based on the proposed Release No. 2013-009, Improving Transparency Through Disclosure of Engagement Partner and Certain Other Participants in Audits. Hoping to issue the new rules soon, the proposed requirement of disclosing the lead partner on an auditor’s report has received the most attention. However, several financial professionals argue that investors may favor details regarding other audit participants.
Under Release No. 2013-009, the names of outside firms and their locations must be disclosed. The requirement is in response to U.S. company audits that have outside firms or independent accountants from China and European nations review supplementary work. Additionally, the auditor will be required to state the percentage of total hours in the audit’s most recent period attributable to other participants. The proposal also increases the disclosure limit from three percent of the total audit hours to five percent. The total audit hours’ disclosure is in response to audits being completed in a foreign jurisdiction that may not be subject to inspection due to that country’s restrictions.
In a comment letter by Council of Institutional Investors’ Jeff Mahoney, the general counsel stated that information about outside firms and related details could be significant to investors if the other firm is not subjected to inspections or disciplinary history tied to the PCAOB or other regulatory bodies, or possible conflicting, legal and regulatory requirements. Senator Carl Levin also agrees with the disclosure, commenting in his own comment letter that the Senate Permanent Subcommittee on Investigations discovered various issues concerning foreign auditors, specifically those located in jurisdictions with tough confidentiality laws and fragile anti-money laundering controls. Meanwhile, some accounting firms have written comment letters saying if firms are disclosed on auditor reports, listed firms will face increased legal liability and litigation costs due to consent requirements in securities laws.
PCAOB Chairman James Doty expects his group to move forward with its audit disclosure efforts in September. In the meantime, discover how Cherry Bekaert’s Audit & Attest services can benefit your company.