Thank you, Chairman Doty, for calling this public meeting to further explore some of the principal themes that have emerged in the feedback that the Board has received in response to the PCAOB Concept Release on Auditor Independence and Audit Firm Rotation issued in August of last year.
The Board has received more than 670 comment letters and heard from 77 speakers on this topic to date. Throughout this process, the Board has received rich feedback on the complex issues that impact auditor independence and audit quality, as well as a range of suggestions for potential actions that could be taken.
Commenters have acknowledged the fundamental importance of auditor independence as the underpinning of confidence in the auditing profession. They also expressed support for the Board's efforts to ensure or enhance the auditor's independence, objectivity, and professional skepticism, although suggestions for how this might be achieved varied widely.
The concept release and our related public meetings are creating a substantive debate among the full range of stakeholders. It is certainly public knowledge that the majority of the commenters on this issuer were opposed to a requirement for mandatory audit firm rotation for a variety of reasons. We are currently conducting analyses of the feedback we have received, as well as additional research by the PCAOB and others.
Today we will explore a number of major themes in the comment letters and panelist feedback, including the following suggestions:
- strengthening audit committees, including enhancing their financial expertise, increasing their independence from management, and enhancing and increasing interaction and communications with investors, auditors, and the PCAOB;
- increasing emphasis on professional skepticism in standards and education for auditors, as well as in the firms' culture and systems of quality control.
- increasing the transparency surrounding PCAOB inspection results, as well as making public the PCAOB's enforcement investigations and proceedings;
- expanding PCAOB inspections in certain circumstances;
- increasing the root cause analyses by the PCAOB and the firms on the causes of audit deficiencies;
- using mandatory "retendering" of the audit and/or a formal re-evaluation of the auditor's tenure at given intervals;
- exploring variations on the possible use of firm rotation, including limiting any potential rotation requirement to certain audits and certain circumstances; and
- potentially further restricting the provision of non-audit services by the auditor.
I am personally committed to exploring the broad range of themes and issues that influence auditor independence, objectivity, and professional skepticism, as well as audit quality, and advancing the Board's efforts to protect investors and the public interest through high quality, independent audits.
Any methods for improving auditor independence and audit quality won't be simple, and there will not be a "silver bullet."
Today, we will be hearing from a new group of highly qualified panelists. I am interested in their views on the different challenges to achieving independence, objectivity, and professional skepticism and the variety of potential actions that could be taken to help improve auditor independence and audit quality.
I believe that we need concerted and sustained action from the full range of parties who have responsibility for these issues, including those responsible for accounting education, audit firm recruitment and training, audit firm culture and tone at the top, audit committee and board oversight, as well as PCAOB inspections and other regulatory activities.
It is paramount, of course, that all of the parties with responsibility throughout the process keep the interests of investors front and center.
One of the major themes that has emerged during the Board's efforts on auditor independence is a consensus on the importance of audit committees in overseeing the auditor and the audit process.
PCAOB does not have regulatory jurisdiction over audit committees. But we should not overlook the tremendous value in coordinating and leveraging our efforts; avoiding duplication and/or fragmentation; and providing for a seamless system of effective governance and audit oversight. During our outreach, PCAOB received feedback on ways that audit committee performance can be enhanced. I'm pleased that we have a number of audit committee members and corporate governance experts here today to explore these issues.
Another theme emerging from the input that the Board has received is that professional skepticism should be emphasized more in the education, training, and standard-setting for auditors, as well as in the firms' cultures, tone at the top, and systems of quality control. I'm pleased that we have a number of academicians and practitioners here today to further explore these issues with us.
I am also very interested in the views of the investors and others here today on these and other issues impacting auditor independence, audit quality, and investor protection.
I believe investors will be well-served if the various organizations and groups charged with protecting investors, the public interest, and the integrity of the U.S. capital markets work together effectively to achieve these goals.
The bottom line here is that we must come up with a package of actions that will be solid and effective in protecting investors and the public interest through independent, high quality financial audits.
We also need to carefully consider and analyze the potential costs and benefits of various actions, as well as the risks associated with unintended consequences, so that we are effective in protecting the interests of investors and furthering the public interest in the preparation of informative, accurate, and independent audit reports.
I want to thank all of the panelists, their staff, and their constituencies, for taking the time and effort to assist us in exploring these very important issues.