I am pleased to support the recommendation before us today to seek additional public comment on proposed changes to our standards related to audits involving multiple audit firms.
As companies continue to expand their operations across the globe, the extent and complexity of audits involving multiple audit firms has only increased. In 2020, multiple auditors were used in 30% of all issuer audits, and nearly 30% of these engagements had five or more separate audit firms involved.
Working across multiple audit firms can increase the risks of lack of coordination and miscommunication, which can lead to misunderstandings about the nature, timing, and extent of the work of other auditors, and therefore result in reduced audit quality.
While we have seen some improvement in recent years in the quality of work performed by other auditors, we continue to identify deficiencies — deficiencies the lead auditor did not identify or did not address. Such findings indicate investor protection can be further enhanced by increasing the required involvement of lead auditors in planning and supervising the work of other auditors.
It is therefore imperative that we drive to finish this important project.
The changes to our existing standards set forth in today’s proposal are designed to better ensure the lead auditor plays a central role in determining the scope of audit procedures and in coordinating and supervising effective execution of such procedures by other audit firms on the engagement.
These proposed changes incorporate our consideration of comments we received in prior proposals released in 2016 and 2017, along with stakeholder input and the results of our oversight activities since then.
Today we are seeking additional comments in certain areas, such as in how a lead auditor assesses the sufficiency of its participation in the group audit or assesses the knowledge, skill, and ability of other auditors or their compliance with independence and ethics requirements. Another example of where we are seeking comments is in how supervision should be handled in audits involving multiple tiers of other auditors.
We welcome stakeholder feedback on these matters or on any other aspect of the proposed amendments. Such input will be invaluable as we consider the potential changes in our standards to further drive improved audit quality and investor protection.
I would like to recognize and thank all those at the PCAOB who have contributed to this effort — including the staff in our Offices of the Chief Auditor, Economic and Risk Analysis, General Counsel, and in our Division of Registration and Inspections. I would like to especially recognize those individuals from the Office of the Chief Auditor currently on the project team: Barb Vanich, Lillian Ceynowa, Stephanie Hunter, Dima Andriyenko, Hunter Jones, and Andrew Cleve. I would also like to thank the SEC’s staff for their support and assistance.