Thank you, Mr. Chairman. I have a written statement, but rather than reading it I am simply going to talk here. In listening to the Board Members, there are rather obviously philosophic differences in the way we look at the issues addressed by this standard, so I want to give you my own views of this project and how it fits into a larger agenda at the PCAOB. One of the questions one could ask is since the PCAOB has been at this since 2008, why are we reproposing it? Can't we make up our minds about this project?
I think it makes sense to repropose the standard for several reasons. First, the law on liability for violations of the securities laws is developing. Second, because other countries have begun to adopt engagement partner disclosure requirements and academic studies are beginning to study those disclosure regimes and their effects, we have more information than we had in the past. Generally, more information leads to better decisions. Finally, in 2012 with the adoption of the JOBS Act, regulators are now required in rulemaking to look at the economic impact of proposed regulations, particularly as the rulemaking affects emerging growth companies with respect to efficiency, competition and capital formation. While the JOBS Act requires us to do this, it also gives a chance for our economists to show their skills and I believe that such analysis makes rulemaking better. So I support the reproposal, but I am eager to see us move forward to a final proposal.
I look at this project as part of a larger effort by the PCAOB to cast more light on the audit process for the benefit of investors and other users of financial statements. Up to now, to a great extent, investors — in looking at the results and process of the audit -- have had to view it through a glass darkly, as the Bible says. There has been very little transparency into who performs the audit, what the audit work is, what the auditor thinks and what the auditor knows beyond that the financial statements are or are not fairly presented. Audit committees have had access to this information for many years, but investors -- who after all are the owners of the company -- do not have access to that information. I believe that this project -- along with the Board's revised auditor's reporting model proposal, our efforts to make our summary inspection findings more useful to the public, and the Board's outreach to investors and audit committees -- can provide information that investors may find useful. So I am supportive of this project as part of the larger goal of the PCAOB to increase the transparency of the audit.
Now let me note several things about this particular proposal. For one thing, it requires the disclosure of the name of the engagement partner in the audit report. I strongly support doing that for several reasons. First, including the partner's name in the audit report puts it in a place that is easily accessible to investors, namely in the annual report on Form 10-K. That is probably the first document investors in a company look at. Certainly, that is my personal experience as someone who owns shares. When I first look at a company, the first thing I look at is the 10-K, the proxy statement and the annual report. If the audit engagement partner's name is included in the audit report, I will be able to see that in a document routinely provided to me. If I were required to go to a separate source for the information, such as the PCAOB's website, I would be very unlikely to do that in most instances. Having gone back and looked at how many times our website is hit normally in a year by people looking at the various forms that are filed here, and seeing the relatively small number of hits, I am not encouraged that disclosure on our website would make the information easily available to the average investor.
I am also aware of the fact that disclosure of the audit engagement partner's name alone, initially, probably won't provide much useful information. What information does a name alone give one? I do think over time, however, that information will be gathered about these auditor partners, probably by third-party information providers, including things like the industry experience of that auditor, the public companies with which the auditor has been associated, whether the auditor has been involved in public disciplinary proceedings or litigation or been involved in publicly-disclosed financial restatements, as well as information about the professional activities of the auditor. I believe that this would be useful information to investors. We certainly know that an increasing amount of information is available about other professionals such as doctors and lawyers, and that consumers widely use the rating services and the information services that rate other professionals. I don't know why things would be any different with auditors, once their identity was widely known.
With respect to the identification of other firms participating in the audit, I agree with what my colleagues have said, but I have certain other thoughts about it as well. Jay Hanson asked the question, why is 5 percent the appropriate number rather than another number such as 3 percent? There is not any magic number we could pick. Any number will be arbitrary. The reason I think 5 percent is reasonable is that it is a significant amount but small enough to give a good picture of the participants in the audit, particularly in the case of issuers with significant operations in different parts of the world. Above 5 percent, we would require disclosures in ranges in 10 percent additional increments. Over time, I think this information will be useful to investors, particularly when viewed comparatively with other information. For example, if suddenly there is a spike or a decrease in the audit work done by a particular auditor in one country -- that may give an investor a clue as to the business issues at the company. Why was the auditor concerned enough to do more work or why did the audit work suddenly drop off? Such events may lead to questions that a financial statement user might want to ask. That information isn't available today. No one knows that information except, possibly, company management and the audit committee. Also, by knowing the identity of participants in the audit, a user of the financial statements can then find out whether there are PCAOB inspection reports of those participating auditors or whether, as the Chairman said, we're barred from going to those countries. All of that, I believe, would be useful information.
We are aware, and we have assumed for purposes of our analysis, that by requiring the names of both the engagement partner and the participating firms to be disclosed in the auditor's report, those people likely would be required to file consents to the use of their names with the Securities and Exchange Commission and that will make them subject to Section 11 liability under the Securities Act of 1933. If the SEC wants a different result, that's their business and within their power, but for our purposes we have assumed that consents will be required. I do note, however, that this does not in any way -- except for the filing requirement -- increase the performance obligations with respect to the audit of any of these affected parties, nor should it increase the aggregate liability that could be imposed in the case of securities litigation. There is extensive analysis of the liability implications of the Board's actions in this proposed release and I am satisfied that the better argument is that liability should not be increased.
One other thing I want to point out about the naming of the engagement partner is that it moves the United States into conformity with what is increasingly the practice in the rest of the world. The European Union already requires disclosures of the auditor's name and signature of the audit reports by the audit engagement partner. Australia requires the auditor to sign the auditor report. The International Auditing and Assurance Standards Board has a proposal out that would require disclosure in the audit report of the engagement partner's name. If that is adopted, as it is likely to be, that will become binding on the many countries around the world that will follow those standards. If we don't move in this way, the United States will be an outlier and I don't think we should be an outlier on an issue like this.
We've asked many questions and we are very eager to hear what people think about this proposal, but I strongly support this proposal and hope we move forward. In closing, I want to thank the hardworking staffs of the Office of the Chief Auditor, the Office of the General Counsel, and the Office of Research and Analysis who have been engaged in this project for four years. I want to welcome the first really significant engagement in one of our projects by the economists at the PCAOB. Their work has been really terrific and helpful to us. And, as usual, I want to thank the staff of the Securities and Exchange Commission who has provided thoughtful comments on the draft and the project as a whole. Thank you, Mr. Chairman.