Sunday, July 01, 2012

PCAOB Member Franzel Stresses Role of Audit Committees at Recent Hearing While Chairman Doty Emphasizes Cross-Border Implications

At a recent PCAOB hearing on auditor independence, Board Member Jeanette Franzel said that audit committees can have a tremendous, positive impact on the independence and quality of the financial statement audit.  However, the Board has also heard that not all audit committees are created equal and that there appears to be significant variability in practice.  This is troubling, noted Member Franzel, because of the key role that audit committees were given in the Sarbanes-Oxley Act to help oversee financial reporting and auditing for the benefit of investors. 
In her view, achieving audit committee effectiveness on a broad and consistent basis will involve others beyond the PCAOB.  The Board has authority to set standards and regulate the auditor side of the relationship with audit committees. However, the overall effectiveness of audit committees in carrying out the full scope of their oversight responsibilities will have a significant impact on the PCAOB’s efforts to facilitate independent high quality audits.  Member Franzel called for constructive engagement and dialogue among the involved parties to achieve the common goal of consistent audit committee effectiveness in reinforcing auditor independence, audit quality, and reliable financial reporting. 
In his remarks, Chairman James Doty emphasized the cross-border nature of the most significant issues affecting accounting and auditing today as the U.S. becomes more interconnected and interdependent with economies around the world. Global audit regulators are investigating ways to counteract the potential for conflict that stems from the inherent risk in the current auditor payment model, he observed, pressure that could affect how an auditor approaches tough decisions on an audit. Auditor skepticism is a concern of people in London, the European continent and in Asia.
Member Franzel is troubled that PCAOB inspections continue to find serious audit deficiencies where auditors do not conduct basic auditing procedures required by the standards; or where they simply use management’s explanations as their own conclusions, without adequate audit scrutiny, about material issues that have importance for investors. The Board is concerned by the number of serious deficiencies found in 2010 and 2011 inspections. In the next few months, she related, the Board will issue a series of periodic reports under Rule 4010 describing some of the common PCAOB inspection findings and sharing some of the insights that the Board is gaining from those findings.