As the concept release the Board is considering today notes, the idea of requiring the engagement partner, in his or her name, to sign a public company audit report is not new. Signature in the name of a firm has long been the norm in the United States. However, in 2006, the European Union's Eighth Directive required the signature of a natural person on audit reports. The Board's Standing Advisory Group discussed the possibility of requiring a partner signature -- along with the firm's signature -- in 2005, 2007, and 2008. Moreover, in October, 2008, the final report of the Department of the Treasury's Advisory Committee on the Auditing Profession (known by the acronym ACAP) urged the Board to "undertake a standard-setting initiative to consider mandating the engagement partner's signature on the auditor's report." The ACAP report states that "the engagement partner’s signature on the auditor’s report would increase transparency and accountability."
In light of this history, it is appropriate that the Board begin a process to consider a partner signature requirement. Investor representatives at the SAG and ACAP discussions have consistently supported the idea that the engagement partner should be expected to put his or her own reputation on the line by signing the report that is the product of the audit he or she supervised. Some have also analogized an engagement partner's signature to the CEO and CFO certifications required under Section 302 of the Sarbanes-Oxley Act. Given the Board's statutory mandate to further the interests of investors in informative, fair, and independent audit reports, we would be remiss if we did not take the ACAP recommendation seriously.
At the same time, I think it is prudent that the Board is beginning this process with a concept release, rather than a proposed standard. One of the most powerful laws to which we are subject is the law of unintended consequences. Before the Board decides whether and how to implement a partner signature requirement, it is important that we learn as much as we can concerning the likely impact, in order that we will not be surprised by the results.
Along those lines, the concept release is aimed at generating input and views on a wide range of important issues that partner signature would raise. The release poses 16 questions for consideration by commenters. Issues that I consider particularly important include --
- What are the liability ramifications of engagement partner signature? Are there steps the Board could or should take to mitigate the likelihood of increasing an engagement partner's personal liability in private litigation?
- Should an engagement partner signature requirement be implemented in conjunction with revisions to the guidance in the existing standards regarding the responsibilities of an engagement partner?
- Are there tangible reasons to believe that engagement partner signature would improve audit quality? If engagement partner signature would indeed affect auditor behavior, how would the behavioral changes affect audit cost?
- What impact, if any, would engagement partner signature have on the ability of investors, other financial statement users, and audit committees to assess audit quality? If public identification of the engagement partner would be an important factor in selecting and evaluating an audit firm, would this promote or retard competition and concentration in public company auditing?
I hope the concept release will generate thoughtful and practical answers to these and the other questions raised. I also hope that commenters who have opposed partner signature will make an effort to put themselves in the shoes of investors and other users who see the signature as a way of promoting individual responsibility and transparency. Conversely, I hope that signature proponents will candidly address possible collateral consequences.
I want to acknowledge the efforts of Bella Rivshin of the Office of the Chief Auditor, and Jake Lesser and Mary Peters of the Office of the General Counsel, in bringing the partner signature project to its current stage. I suspect there will be several future opportunities to express appreciation for your work on this issue, since this is only the beginning of this project.