Statement on Public Meeting On Auditor Independence and Audit Firm Rotation

Welcome everyone to the Public Company Accounting Oversight Board's first public meeting on the Board's concept release on ways to enhance auditor independence.

The discussions we undertake today will raise important questions for our financial markets and the protection of investors.

Investors need reliable financial reporting in order that they, or their intermediaries, can fairly evaluate a potential investment as well as management's stewardship of the companies in which they have purchased interests.

Such investor protection considerations form the expressed purposes for which Congress created the PCAOB. The Sarbanes-Oxley Act requires that the PCAOB, in furtherance of investor protection, establish standards that foster auditor independence.

The linchpin of investor confidence is the independent audit of a public company's financial statements. The statutory franchise to conduct those audits has been accorded to the accounting profession.

To perform their role properly — to assure that reported financial and economic successes are not illusory — auditors must approach their jobs with independence, objectivity and skepticism. They cannot allow themselves to be caught up in their audit clients' business goals.

It is the rare case in which an auditor knowingly compromises his or her integrity. But well-intentioned auditors, as with other people, sometimes fail to recognize and guard against their own unconscious biases.

We are nearly ten years from the adoption of Sarbanes-Oxley. With that experience, we have embarked on an in-depth examination of an issue that continues to trouble many of the most thoughtful supporters of the audit profession — the subtle (and not so subtle) influences on the auditor's mindset, and the implication for the integrity of the audit.

In August 2011, the PCAOB issued a concept release, seeking public comment on a variety of questions about how to improve auditor independence, objectivity and professional skepticism. Our discussion today will supplement the written comments we have received on the concept release.

The discussion will focus on ways to insulate the audit process from the pressure to maintain a long-term relationship with the audit client, pressure that could affect how an auditor approaches tough decisions on an audit.

Many people are troubled by reports of audits that span decades, even a century. These are the engagements that no partner wants to be the one to lose. At the same time, we should be concerned about the relatively new audit that the auditor may hope to turn into a long-term engagement.

The panelists who are speaking to us over these two days include some of the most authoritative and experienced voices to address the subject of audit quality, auditor independence and the challenges to both. These panelists have different perspectives and divergent views on rotation of audit firms and a range of related subjects.

In issuing the Concept Release, I recognized that fixed term limits would significantly alter the status quo. The idea is not popular among audit firms and companies. The concept release did not raise it lightly and was candid about the challenges of implementing mandatory term limits.

I have no predetermined outcome in mind, other than that the debate be robust. If there are better alternatives to accomplish the goal of improving independence, we should hear them.

We will hear honest debate about whether term limits will enhance auditor independence and skepticism, and about potential collateral drawbacks that could result from rotation. To that end, the meetings today and tomorrow include a wide variety of perspectives. This is not a contest to judge the loudest voice.

I want to acknowledge and thank the many speakers scheduled for the next two days for setting aside time, and in many cases traveling to be here. Your participation is critical to helping us fill out the scope of opinion for our examination.

I hope to hold similar meetings in other cities around the country. I look forward to each of those meetings informing this important debate.