By John Filar Atwood
Ten months after previous advisory committees were dissolved, the newly-seated PCAOB has decided to create two new groups to obtain investor and stakeholder input on matters related to audit quality. The Board is currently seeking membership nominations as well as public comment on the structure of the new Investor Advisory Group (IAG) and Standards and Emerging Issues Advisory Group (SEIAG).
The PCAOB envisions that the IAG will advise the Board on matters related to the PCAOB’s oversight of public company audits. This will cover the preparation of audit reports, and key areas of concern and emerging risks related to the PCAOB’s oversight activities.
The SEIAG will advise the PCAOB on existing standards, proposed standards, and potential new accounting standards. If requested by the Board, the SEIAG also will consider emerging audit issues and other matters that are significant to the PCAOB.
Dissolution of previous committees. The SEIAG will replace the Standards Advisory Group (2021 SAG) created in early 2021. The 2021 SAG was established at the same time as the PCAOB dissolved its previous advisory groups: the Standing Advisory Group and the Investor Advisory Group.
At the time of their dissolution, then-Chair William Duhnke said that the previous advisory groups model conflated the distinct functions of outreach and expert advice. One key change in approach was that the two dissolved groups routinely held public meetings over the history of the PCAOB, while the 2021 SAG’s meetings were not open to the public.
New PCAOB Chair Erica Williams said that the effectiveness of the Board’s oversight depends on robust dialogue with stakeholders, including the investor community, audit committee members, preparers and auditors of financial statements, and academics. She intends for the new groups to build on the success of the past advisory groups, and to create opportunities for regular engagement with stakeholders.
To promote transparency around the structure and operation of the new advisory groups, the PCAOB will defer adoption of formal charters for the groups until after giving the public an opportunity to comment on the attributes of the new groups. Comments are due by February 28.
IAG structure. To facilitate public feedback, the PCAOB has provided proposed structures for the IAG and SEIAG. The PCAOB proposes that the IAG will consist of up to 18 voting members. To ensure communication between the IAG and the SEIAG, one or more IAG members will also serve on the SEIAG.
IAG membership will be for a two-year term, but to enhance continuity, half of the initial members will be appointed for a three-year term. All IAG members will be limited to six consecutive years.
An IAG member and either a Board member or PCAOB staff person will serve as co-chairs of the IAG. The member co-chair will be elected by the IAG, while the Board member or PCAOB staff person co-chair will be appointed by the Board.
SEIAG structure. The SEIAG will consist of up to 24 voting members. At least one SEIAG member will also serve on the IAG.
The members of the SEIAG will be individuals with expertise in one or more of the following areas: accounting (including financial reporting); auditing; corporate finance; corporate governance (including audit committees or boards of directors); investing in public companies; and other areas that the Board deems relevant.
SEIAG membership will be for a two-year term, but half of the initial members will be appointed for a three-year term. As with the IAG, members will be limited to six consecutive years. The PCAOB’s Chief Auditor will serve as chair of the SEIAG, and the Board may consider appointing a SEIAG co-chair to serve alongside the Chief Auditor.
Nominations are open to both new prospective participants and members who have served on the PCAOB’s previous advisory groups. The Board will select advisory group members based on nominations received from any person or organization. The PCAOB expects to announce advisory group appointments in early spring, and anticipates that members’ terms will begin immediately.