Welcome to the first meeting of the PCAOB's Investor Advisory Group.
I want to thank all of you for participating and agreeing to donate your time, expertise and commitment to this Advisory Group.
I particularly welcome SEC Commissioner Elisse Walter.
Commissioner Walter – your longstanding commitment to the protection of investors is well known and your presence here today means a great deal to us.
This group was formed to provide a public forum specifically for the Board to obtain the views of, and advice from, the broad investor community on auditor oversight matters affecting investors.
Too often, in my opinion, regulators hear, for the most part, from those they regulate and not enough from their other key stakeholders. Today we are reaching out specifically to representatives of the investor community.
As such, we seek your direct input and want to hear your views and specific recommendations for the priorities of the PCAOB.
Our mandate, as spelled out in the very first sentence of Title I of the Sarbanes-Oxley Act of 2002 is "to oversee the audit of public companies that are subject to the securities laws, and related matters, in order to protect the interests of investors and further the public interest in the preparation of informative, accurate and independent audit reports…"
In assigning the Board this mandate, Congress recognized that high quality, independent audits are vital for maintaining the transparency and investor trust in reported financial information that enables our markets to function effectively.
We look forward to your input on ways to improve our programs and how best to accomplish our mandate to protect and serve the interests of investors.
All of the Board Members and Senior Staff of the PCAOB are here today because we know we can benefit from your expertise and experience.
Turning to the format for today's meeting.
As you know, we solicited input from all of you as to your top four or five priorities for the PCAOB to consider. And you provided us with lists of important and far-ranging topics. We have taken your recommendations and structured them into broad categories.
We have tried to structure our meeting around these broad topics with the objective of providing every member with an opportunity to discuss his or her top priority.
More specifically, the topics will be presented today as a part of five panel discussions as follows:
First, we will have a discussion on "Lessons Learned from the Financial Crisis and the Establishment of a Fraud Center."
Next, we will discuss "Foreign Inspections."
After lunch, we will talk about "Greater Transparency and Governance of Audit Firms."
Then we will focus on "Greater Transparency of the Audit Process."
The last panel discussion will be on "Auditor Expertise and Responsibilities."
After a very brief introduction of the panel by one of the PCAOB Board members, each panel will initiate and discuss its topic and then lead the other IAG members in a discussion of the topic. At the end of the day, there will be a sixth session reserved for an open discussion on any topics not adequately addressed by the panel discussions.
In short, we have structured this meeting in order to provide an opportunity for an open discussion by the group so that we can hear your views and priorities for the PCAOB.
Throughout today's meeting I would ask that each of you keep in mind, and seek to answer the question, "How do we make audits more relevant to investors?"
I would also like to note that today's meeting is being Webcast. Since we would like the open discussions to be informal and free flowing, please do not feel as though you have to be recognized to speak. We would ask, however, that for the benefit of those listening to the Webcast, you identify yourself the first time you speak and periodically throughout the day.
This meeting is open to the public. And the IAG members' written statements that we received have been posted on our Web site.
Before getting started, let me recognize our Acting Chairman Daniel L. Goelzer, then Elisse Walter and our other Board members, Bill Gradison and Charles D. Niemeier.
Now turning to our first topic:
Lessons Learned from the Financial Crisis and the Establishment of a Fraud Center
This topic was mentioned by a number of you as a top priority for the PCAOB to consider.
Brandon Becker, you suggested that we should review "…the PCAOB and audit firms' performances [leading] up to the financial crisis." More specifically, you asked, "How did audit firms measure risk and did auditors have the necessary level of expertise?"
Damon Silvers, you stated that you think "…the most important priority for the PCAOB should be investigating and acting on the lessons of auditing issues revealed by the financial crisis of the last several years."
And, Mike Head, you brought it up in the context of broker-dealers.
Other members who listed these issues as very high on their priority lists were Ann Yerger, Anne Simpson, Barbara Roper, Lynn Turner, Meredith Williams and Joe Carcello.
Some of you tied the concept of reviewing lessons learned from the financial crisis to the recommendation by the Treasury's Advisory Committee on the Auditing Profession that the PCAOB establish a fraud center.
As you know, the PCAOB announced last month that we are seeking to fill a newly created position of Director of the Financial Reporting Fraud Resource Center.
So it is very timely that we hear your thoughts on these topics, particularly given the level of interest expressed by the IAG members, as well as recent events in the news.
For example, just last week the Financial Times (Tuesday, April 27, 2010) reported that "[t]he European Commission is [planning] to scrutinize the role played by auditors adding to a growing international focus on the profession in the aftermath of the financial crisis, which could lead to tighter supervision."
Damon, I would ask that you, Brandon and Mike kick off the conversation on this before opening it up to all the members.