Statement on Proposed Auditing Standard on Communication With Audit Committees

I want to thank the staff for bringing forward this proposal.  A number of people helped, but in particular I’d like to recognize Barb Vanich, Jessica Watts, Bob Burns and Nina Mojiri-Azad for all their hard work.

This is a challenging proposal.  In directing the stock exchanges to adopt rules making the audit committee “directly responsible for the appointment, compensation, and oversight” of the company’s auditor, the Sarbanes-Oxley Act intended to free auditors from management and encourage them to be more vigilant in protecting investors.  This reform spurred a significant change in the relationship between auditors and companies.  But based on our experience observing how auditors handle difficult audit issues – such as determining how to handle identified misstatements – I believe there is still room for improvement.

If the audit committee isn’t aware of areas where management may have an incentive or opportunity to pressure the auditor to go along with its desires, then it can’t effectively intervene to support the auditor.  The proposed standard takes on the challenging task of encouraging open, forthright, and robust discussion as a way to educate audit committees on such matters.  I must admit some skepticism as to whether a new standard will prompt more robust discussion, though.  To my mind, the problem hasn’t been in the existing standard, but in the culture.  Nevertheless, the proposed standard is a better articulation of the culture we’d like to see, so I support it.

I want to thank the staff again for all the hard work, including the effort necessary to stay focused on our mission in the face of conflicting encouragement to look to the profession’s standards.  I look forward to comments on the proposal.