By Amy Leisinger, J.D.
In a letter to the PCAOB, the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness (CCMC) noted that the group is “very supportive” of the PCAOB’s draft strategic plan for 2018-2022 but recommended a series of improvements to support the Board’s focus on strengthening its processes and increasing transparency, accessibility, and regulatory coordination. Among other things, the CCMC suggests that the PCAOB convene a roundtable on audit transformation and issue a policy statement on audit judgments, establish certain advisory groups and forums, consider the business impact of inspections, and adjust its approach to economic analysis.
Strategic plan. In its strategic plan, the PCAOB noted that it intends to drive improvement in the quality of audit services by conducting inspection activities to facilitate more timely and relevant feedback to stakeholders and by better leveraging economic and risk analysis to more effectively set standards, rules, and guidance. To accomplish its goal of anticipating and responding to the changing environment, the PCAOB proposes to assess the impact of emerging technologies on the quality of audit services and to endeavor to understand investors’ audit expectations. The PCAOB’s effort to enhance transparency and accessibility through proactive stakeholder engagement will involve improving the timeliness, usefulness, and clarity of agency information. To promote operational excellence, the PCAOB will develop and implement an enterprise risk management program and enhance its financial management capabilities while improving its monitoring of internal processes.
CCMC recommendations. The audit profession is transforming as technology changes, according to the CCMC, and the PCAOB needs to change with the industry; to facilitate the change, the Board should hold a roundtable to discuss relevant issues with all stakeholders, the group explains. The CCMC also suggests that the PCAOB should issue a policy statement on how it evaluates the reasonableness of auditor judgments made based on the Board’s auditing standards and look to SEC policy in making its compliance determinations. When assessing its inspections approach, the CCMC encourages the PCAOB to consider inspection issues that impact businesses and coordinate with the SEC, the Financial Accounting Standards Board, and other relevant stakeholders.
The CCMC further recommends that the Board form a Business Advisory Group to better understand the role of companies as investors and the unintended consequences inspections may have for businesses, as well as an Audit Advisory Group made up of practicing auditors to inform the PCAOB’s decisions. Development of a formal Financial Reporting Forum in conjunction with other financial regulators, investors, and businesses could also aid in addressing issues arising from the PCAOB inspections, the CCMC explains. The group also urges the Board to coordinate with the SEC and FASB to provide input on the auditability of GAAP in developing accounting standards and disclosure requirements and recommends enhanced coordination with foreign regulators to reduce regulatory discrepancies. According to the CCMC, the PCAOB should also share data it has collected with auditors to identify needs and best practices and assist detection and deterrence of fraud.
When leveraging economic and risk analysis to set more effective standards, the CCMC recommends that the PCAOB engage in field-testing before promulgating rules and review any changes post-implementation. The Board’s evaluation of the costs and benefits of a given standard should also involve consideration of unintended consequences, according to the CCMC, and the PCAOB should continue to strengthen its economic analysis process.