PCAOB Reproposes Amendments to Improve Transparency by Requiring Disclosure of the Engagement Partner and Certain Participants in the Audit
Update: On Jan 30, 2014, the Board extended the comment period until March 17.
The Public Company Accounting Oversight Board today reproposed for public comment amendments to PCAOB auditing standards that would provide greater transparency into audits of public companies, brokers, and dealers about the engagement partner and certain other participants in the audit.
"Identifying the engagement partner and providing additional information about the other participants in the audit will increase the usefulness of the auditor's report for investors when making their investment decisions, as well as when voting on the ratification of a company's choice of accounting firm as its auditor," said James R. Doty, PCAOB Chairman.
The reproposed amendments would require disclosure in the auditor's report of:
- the name of the engagement partner who led the audit for the most recent period, and
- the names, locations, and extent of participation (as a percentage of the total audit hours) of other public accounting firms that took part in the audit, and the locations and extent of participation of other persons (whether an individual or a company) not employed by the auditor who performed procedures on the audit.
"Knowing the name of the engagement partner on an audit, and the various other firms that participate in a global audit may help the investing public identify and judge quality, leading to better auditing," Chairman Doty said.
Generally, audits today only disclose the name of the firm that issued the auditor's report and as such, information about the other firms and persons that participated in the audit is unknown to investors and other users of the auditor's report.
In many audit engagements, especially audits of companies with multiple locations and international operations, the primary audit firm may perform only a portion of the audit. The remainder of the work may be performed by other affiliated accounting firms, non-affiliated accounting firms, or other persons not employed by the auditor, such as consulting firms and individual accountants.
"Over time, investors will benefit from knowing the identity of the engagement partner and being able to obtain an understanding of an engagement partner's history when evaluating the audit," said Martin F. Baumann, PCAOB Chief Auditor and Director of Professional Standards.
"Further, it will be very useful for investors to know what other firms participated in an audit and the extent of their participation, as different firms participating in the audit may have very different inspection results or may be located in a jurisdiction where the PCAOB is prevented from performing inspections," Baumann said.
Other than the disclosure obligations, the reproposed amendments would not change the performance obligations of the auditor in conducting the audit.
In July 2009, the Board issued a Concept Release on requiring the engagement partner to sign his or her own name to the audit report.
In October 2011, the Board issued a proposal that, among other things, would have required disclosure of the name of the engagement partner without requiring a signature, as well as disclosure of other participants in the audit. Related information is available on the PCAOB website.
The Board is reproposing the amendments to seek additional comment on matters such as the usefulness of the information that would be required to be disclosed, the potential costs the reproposed amendments might impose, whether the reproposed amendments would have any effect on competition, and other aspects of the reproposal.
Comments on the reproposed amendments are due by February 3, 2014.
A fact sheet on the reproposal is also available. An archive of the webcast and a podcast of the Board meeting will be available later on the PCAOB website.