Question regarding matters discussed in the Monitoring Group Consultation Paper: The Monitoring Group is a group of international organizations with a shared commitment to overseeing the governance arrangements for international audit-related standard setting. The international standard-setting boards operating under these arrangements include the IAASB (addressing audit standards) and the IESBA (addressing ethics standards). In November, the Monitoring Group issued a consultation paper setting forth its concerns about the current governance model and seeking input on possible reforms.
Board Member Harris, based on your experience in helping to craft the Sarbanes-Oxley Act of 2002, do you have any reaction to the Monitoring Group's consultation paper and its call for reforms to the current model governing international audit standard setting?
Response by Board Member Steven B. Harris: Yes. I recommend everyone to read this paper, as I believe it raises legitimate questions. The paper notes at the outset that "questions have been raised about the independence of the standard setting process and its responsiveness to the public interest (emphasis added)." [*]
The Monitoring Group further notes, in part, that "there is a legitimate concern among many stakeholders that the influence of the profession is at least perceived to be too strong and that addressing this issue could further strengthen public confidence."
I share these concerns about the independence of the international audit and ethics standard setters. Today, a majority of the governing boards of both of the audit and ethics standard setters is not independent of the profession, nor are their funding sources. As a result, the standards remain open to what I consider to be legitimate concerns that they may be susceptible to a standard setter's form of regulatory capture.
Self-policing didn't work well in the United States. Prior to 2002, the SEC looked to private organizations affiliated with the accounting profession to set auditing standards. Accounting firms or their representatives controlled or funded those organizations. As a result, standards tended to be written through the lens of the profession as opposed to the lens of investor protection.
Concerns about the independence of the standard-setting process were squarely addressed in the United States in 2002, with the passage of the Sarbanes-Oxley Act, in the aftermath of Enron, WorldCom, and a host of other accounting scandals. I believe the PCAOB's assumption of plenary authority over audit standards was essential. So, too, was its independent funding. These measures are intended to safeguard the PCAOB's ability to carry out its mission to "protect the interest of investors and further the public interest" when establishing auditing standards.
For the international audit and ethics standard setters to free themselves of perceptions of conflict of interest or regulatory capture, I believe a clear majority of their governing boards should be independent of the profession. They also need a source of funding that is not secured through the accounting firms.
Technicians should certainly be involved in the drafting of standards but the policymaking choices should be made by public officials who are committed to investor protection.
The Consultation Paper also raises "stakeholder concerns about the timeliness and relevance of the standard-setting process…"
I share these concerns and would note that, on average, it takes audit and accounting standard setters in the United States and internationally five to 10 years to adopt a major standard.
Compare that to how long it took the United States to land a man on the moon. President Kennedy challenged Americans to do just that in 1961 and the mission was accomplished in 1969. Eight years.
I think we all have an obligation to demonstrate the need and define the problem to be addressed before considering any standard, but once that is done, standards should be adopted in a far more timely fashion than is currently the case.
I consider the current timeframes to be unacceptable. I also think we must strive to reduce the complexity and length of our standards whenever possible, which may also speed up their adoption.
Finally, before contemplating any new standard-setting initiative, I believe all audit and accounting standard setters should reach out first and foremost to the investor community, which is the primary constituency of standard setters and the audit profession alike.
The Consultation Paper raises a number of other issues. For example, it includes "the option for a single independent board responsible for setting auditing and assurance standards and ethical standards for auditors …" and goes on to state that "[t]here may be advantages to integrating the development of auditing and assurance standards …" I think this is an option well worth considering.
In sum, I recommend the paper and encourage each of you to bring it to the attention of the users of audited financial statements in your countries, and urge them, in turn, to add their voices to the constructive debate regarding the issues raised by the paper.
 Monitoring Group Consultation Paper: Strengthening the Governance and Oversight of the International Audit-Related Standard Setting Board in the Public Interest (Nov. 9, 2017) ("Monitoring Group Consultation Paper").
 Monitoring Group Consultation Paper, page 3.
[*] The views I express today are my own and do not necessarily reflect those of the Board or staff of the PCAOB.
 Monitoring Group Consultation Paper, page 23.
 See President John F. Kennedy, "Special Message to Congress on Urgent National Need," page 67 (May 25, 1961).
 See Monitoring Group Consultation Paper, page 11.