Welcome and Introduction
Thank you, Steve, for your leadership as Chair of the Investor Advisory Group.
I want to welcome all of you here today, and thank each of you for your work on the timely and relevant topics that we will discuss today. The input and analysis of the Investor Advisory Group and the projects carried out by the working groups will assist the Board's deliberations about ways to improve the value of audits for investors. I look forward to the presentations from each of the work groups on the topics of (1) the role, relevancy and value of the audit; (2) global initiatives and going concern; (3) audit firm practice and transparency; and (4) independence, objectivity and professional skepticism. Your input on these topics will directly support the Board's mission of protecting the interests of investors and furthering the public interest through informative, accurate, and independent audit reports.
The Board's Current Efforts
As you know, the Board held a two-day public meeting last week to explore ways to enhance auditor independence, objectivity, and professional skepticism, including a consideration of audit firm term limits.
As expected, there were divergent views on the issue of mandatory audit firm rotation at specified intervals.
But what was most striking about the two days of input and dialogue from the wide variety of stakeholders (47 participants), was the common understanding and agreement that improvements are needed to the current audit model in order to make financial statement audits more credible and relevant. In fact, this consensus view among participants was stated so consistently that I think it is fair to say the bottom line from last week's meetings is that the "status quo is not an option." We heard from the participants a wide range of potential actions that could help improve the objectivity, credibility and reliability of financial audits, including:
- strengthening audit committee oversight and evaluation of the audit firm and audit process, including disclosures about the audit committee's activities;
- requiring disclosure of audit firm tenure;
- changing audit firm culture and instilling a mindset among auditors that the investor is the client;
- employing targeted audit firm rotation in specific cases;
- requiring periodic rebidding (tendering) of the financial audit; and
- conducting intensive PCAOB inspections in cases where auditor tenure is long or other risks are noted.
The list that I just presented is not all inclusive, but illustrative of the wide range of input that the Board has received. The PCAOB staff now faces the herculean task of summarizing the two days of proceedings for our use going forward. In addition, the Board plans to hold additional meetings across the country to obtain public comment from a wide and diversified set of stakeholders on these issues.
The Board is also working on several other major areas of audit practice, including the auditor's reporting model, auditors' communications with audit committees, related parties, a firm's use of specialists and other auditors, supervisory and quality control responsibilities in a firm, and disclosure of the engagement partner and other participants in audits.
The Need for Improved Audits
I am troubled by the serious audit deficiencies that are found too frequently during PCAOB inspections. Such deficiencies include cases where auditors issue clean opinions even though:
- the audit work is incomplete or not properly conducted;
- financial statement information is contradicted by other available evidence; and/or
- audit conclusions on material issues are based on management's views without independent verification.
Clearly improvements are needed in the audit process and audit model.
I am personally committed to exploring the broad range of issues that impact upon auditor independence, objectivity, and professional skepticism, and audit quality, and advancing the Board's efforts to forge a path for improved audits.
Today's discussions will be directly relevant to the many questions before the Board as we seek to make progress to strengthen the reliability and accuracy of audit reports to protect investors and the public interest.
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I look forward to hearing the input and analysis of the Investor Advisory Group today, and the working groups. Again, thank you for your very important work to support the Board and its mission.