Statement on Public Meeting On Auditor Independence and Audit Firm Rotation

Good morning.

I would like to join Chairman Doty and my fellow Board members in welcoming today's panelists and everyone who is observing this event, in person or over the internet. I would also like to thank our panelists for taking time out of their busy lives to join us here today, as well as to express my appreciation to those who already have provided us with comments, research or other information relating to this project. Your experiences and insights are invaluable as we consider the important but difficult issue of auditor independence, objectivity and skepticism.

I noted back in August of last year, when the Board issued the concept release on auditor independence, that my main goal for the concept release was to provide a vehicle to gather information and spark discussion about whether the Board should do more to enhance auditor independence, objectivity and skepticism, and, if so, what steps the Board should take. Today's event continues that effort.

Based on the number of comment letters we received — over 620 — this clearly is a topic in which many people have an interest. The comment letters demonstrate strong support for the Board to consider the issue of auditor independence, objectivity and skepticism, although mandatory auditor rotation, as an approach to enhance independence, had significantly less support.

I am pleased that we received substantial input from investors through members of audit committees, given their important role in ensuring the independence of auditors. Investor interests lie at the core of our mandate, so I am particularly sensitive to their views and look forward to learning more about their varying perspectives. The audit committee comment letters expressed virtually unanimous opposition to mandatory firm rotation, and I think it is important that we understand why, so I anticipate that we will get into that today. I also am interested in understanding the factors considered by those audit committees who have voluntarily established periodic auditor rotation. I would like to hear from them, and others, whether making auditor rotation mandatory, rather than leaving it as a voluntary option for audit committees, would provide any additional benefits. At the same time, I am concerned about comments suggesting that the Board's actions could undermine the role of audit committees, making them less effective.

Feedback on rotation from investors other than audit committee members was more mixed. I hope to hear more about how we might be able to accomplish our goal of enhancing auditor independence, objectivity and skepticism without causing negative unintended consequences, such as unreasonable costs or a decrease in audit quality.

Audit firms and financial statement preparers also provided extensive comments, in some cases highlighting what they believe are significant downsides to mandatory auditor rotation. Auditors and preparers have extensive hands-on experience with audits, and they provide a valuable perspective. Yet, firms are not unanimous in their opposition to mandatory rotation, so hopefully we can explore today the reasons for their varying views.

Finally, we have heard from a number of academics who have attempted to look at related issues empirically, and several well regarded university professors are joining us today. I look forward to hearing about their research, and I am always eager to hear about steps that learning institutions can take to prepare students for their important role in the capital markets.

I anticipate that the questions we pose to the panelists today will range far and wide and should foster a good debate. Themes to explore include:

• Defining the problems that we are trying to solve, including by trying to understand better the extent to which our panelists believe auditors currently lack independence, objectivity or skepticism and what evidence we should consider in support of such views;
• The role and effectiveness of audit committees in ensuring auditor independence;
• Auditor behavior since the Sarbanes-Oxley Act, including actions firms have taken, and are continuing to take, to enhance auditor independence, objectivity and skepticism, and the effectiveness of such measures; and
• Possible alternatives to mandatory auditor rotation.

Let me end by thanking the staff of the Office of the Chief Auditor for their hard work in planning and preparing for this event. I look forward to what I am sure will be an interesting discussion.