PCAOB Focuses on Auditor Accountability to Investors

August 31st, 2009

Seemingly sudden bank failures and massive undetected investment swindles have fueled fresh criticism of the value of independent audits as a way to protect investors. Much has been done since the Enron meltdown and other accounting scandals to preserve the integrity and effectiveness of audits of public companies. Yet there is still room for improvement, and regulators are considering a number of additional steps designed to improve auditor accountability to investors.

Measures currently under consideration include the following:

  • Require the signature on the audit report of the partner responsible for the audit in addition to the signature of the auditing firm.
  • Require that US audit firms prepare annual reports containing information about their own financial condition and make the reports available to investors.
  • Establish a formal system for monitoring sources of catastrophic risk to audit firms.
  • Morph toward an expanded plain-English audit report.
  • Create a national center for the prevention and detection of financial fraud.
  • Require the appointment of
    independent members to serve on advisory boards to audit firms.

  • Study ways to remove barriers to growth by smaller auditing firms.
  • Set more rigorous standards to address supervision of audit work.
  • Provide investors and other interested parties with more extensive reporting of the activities of the Public Company Accounting Oversight Board (PCAOB), including information about audit firms that fail to remediate deficiencies in their quality control systems.

Importantly for investors, PCAOB board member Steven Harris has said publicly that he believes all these areas should be given serious consideration by the SEC and PCAOB. He also expressed strong support for more participation by investors in discussions about ways to improve audit quality, both at the PCAOB and at the International Forum of Independent Audit Regulators (IFIAR) of which the PCAOB is a member.

For more information, read the Center’s Special Report on Investor Confidence in Audits: What More Can Be Done? This report summarizes the basics of auditing, describes the events and trends that are likely to affect future audits of public companies, and provides links to additional information. It is available at www.fincenter.org/Audit_Integrity.htm.

Entry Filed under: Governance

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