Thank you, Mr. Chairman. I support the adoption of Auditing Standard No. 7 – the Board’s Engagement Quality Review (EQR) Standard. As I said when this standard was re-proposed last March, Congress had the investing public in mind when it directed the PCAOB to require a second-partner review for every audit of a U.S. public company under section 103(a)(2)(A)(ii)of the Sarbanes-Oxley Act.
I believe that the requirements of this standard make important improvements to our existing interim standard, and that with the adoption of this standard, the quality of the EQR process will improve substantially. I also am confident that, given time, the number of concerns related to poorly performed second-partner reviews identified during our inspection process will diminish. In short, the EQR Standard will give investors added confidence in the quality of the audits of financial statements filed with the SEC.
I also believe that this standard improves upon comparable standards issued by other standard-setting bodies. Appendix 3 of the standard was added to help demonstrate key differences between the EQR Standard and equivalent standards issued by the International Auditing and Assurance Standards Board (IAASB) and the Auditing Standards Board (ASB).
The EQR Standard requires concurring approval of issuance by the engagement quality reviewer before an audit firm can grant permission to the client to use the audit report.
I would like to thank Marty Bauman, in his new role as Chief Auditor, for ensuring that this comparison in Appendix 3 is available to provide examples of how this EQR standard provides investors with a higher level of confidence in audits of U.S. publicly traded companies. This is a valuable new initiative of the Chief Auditor and I look forward to seeing this type of comparison included in future standards issued by the PCAOB.
Since the release effectively describes the changes made to the proposed standard in response to comments received, I do not feel the need to comment on them here, except to say that I believe that the staff has appropriately made revisions where warranted.
In closing, I would like to make the observation that, by considering concerns identified during our inspection process and soliciting input from our Standing Advisory Group, as well as the public at large through our proposal process, the PCAOB was in the unique position to make important improvements to the engagement review process. By enhancing the review performed by a second partner, investors will now have greater assurances that audits performed by registered accounting firms are at their highest level of audit quality.
I would like to thank staff for their work on this standard, in particular, Greg Scates and Dima Andriyenko in the Office of the Chief Auditor, and Jake Lesser in the Office of the General Counsel.