This proposed Policy Statement would interpret two components of Rule 4012. First, the Statement would clarify how a decision to “fully rely” on a home country’s system of inspecting audit firm quality and performance would be implemented. Who would actually conduct the field work, and how will inspection findings be reached? Second, it would describe in significant detail what criteria would guide the Board in evaluating a home country’s audit oversight regime under the five principles articulated in Rule 4012, for the purpose of determining the degree of reliance to be placed on that other regulator.
Formalizing these interpretations is important; it will not only help coordinate our discussions and negotiations with our counterparts abroad, but it will also provide the investing public, as well as audit clients, with a better understanding of how inspections of non-U.S. audit firms will be carried out. But the content of this proposal is not without controversy. This is why I am pleased that we are asking for public comment, and why we are – in recognition of the many activities simultaneously occurring with respect to anticipated commentators – providing for an unusually long (90 day) comment period.
As we evaluate this proposed Policy Statement, it is important to keep in mind several facts.
These are the facts. Now let me describe the two beliefs that have been chiefly influencing my approach to the issues before us today.
Candidly, I am not yet comfortable with this approach – even though, as I stated earlier, I think it would be inappropriate for us to expect every market to duplicate precisely the PCAOB governance structure. We must be mindful that no particular governance structure is necessarily the universal protector against all evil. For example, in reality is there really a difference in mind-set between a person who is currently affiliated with an audit firm, and one who has just left such a firm – expecting to return to that firm as soon as he or she leaves the regulatory body? Does requiring a majority of “lay” governors result in an inappropriate reliance on the professional full-time staff hired by the governing body? As I stated earlier, there is no single governance structure that is perfect in all situations.
I’d like to join with others in thanking the staff for their hard work on this project. I am sincerely looking forward to robust public comment. I urge all interested parties – and particularly those international investors in the U.S. market – to take advantage of this 90-day comment period to analyze the proposal and, as appropriate, suggest alternative approaches. This Board has never adopted in final a rule or standard that has not been significantly changed as a result of the comment period, and I am certain that will be the case with this proposal as well.