I support issuance of these reproposed amendments to AU 508 on reports on audited financial statements. Many investors and users of financial statements have told the Board in round-table discussions, meetings of our Standing Advisory Group and Investor Advisory Group, and comment letters that they would like to know more about the participants in the audit.
These amendments to the audit reporting standard are designed to give more information to investors and other users of financial statements about the identity of the audit engagement partner as well as about certain firms and other participants in the audit. Specifically, the proposal would require the audit engagement partner to be named in the audit report and require disclosure of the names and locations of those firms and other participants, other than the principal auditor, that contributed more than 5 percent of the total audit hours to the audit. Increasing the transparency of participants in the audit was first publicly proposed in a concept release by the Board in 2009. In 2011, the Board issued proposed amendments to the audit report standard dealing with the subject and received 42 comments. In light of those comments as well as the enactment of the Jumpstart Our Business Startups Act ("Jobs Act") in 2012, with its focus on emerging growth companies and on the requirement for economic analysis to determine the effects of rule-making by regulators on efficiency, competition and capital formation, the Board has determined to repropose the amendments.
I believe that we should promote disclosure and increase the transparency of participants in the audit for the benefit of the investing public, and that doing so will enhance the operation of our capital markets. Today, the standard auditor's report tells readers of the report nothing about the identity of the participants in the audit beyond the name of the principal audit firm. Allowing users of financial statements to determine the identity of at least some of the participants in the audit may enhance their ability to assess the reliability of the audit report, and to be better informed when voting on whether to approve the selection of auditors.
In today's increasingly global financial markets, many enterprises operate in more than one country and their audits involve audit work by a number of different firms both within and outside of a network. Some of the audit work may be done by firms that either are not registered with the PCAOB or, even if registered with the Board, operate in jurisdictions where the PCAOB is not able to conduct inspections. Disclosure of the names of the firms participating in the audit may provide information to users of financial statements that they will find useful in making investment decisions. At the very least, it will alert investors that the signing firm, upon which they are relying, may not have performed all of the audit work. The Board has limited the threshold for disclosure to participating firms or others that provided five percent or more of the total audit hours to limit the disclosure to those firms that, in the Board's view, performed a significant portion of the total audit work.
The Board is aware that at the outset disclosure of the engagement partner's name alone may provide only limited useful information to investors since there may not be much publicly available information about these individuals. In time, however, it seems likely that more information, perhaps compiled by third parties, will become available about such individuals, including the public company audits they have led, lawsuits, public disciplinary proceedings or restatements, if any, in which they have been involved and their other professional activities. Audit committee members may have access to this information today but it has not been generally available to the investing public. A requirement to name the audit engagement partner in the audit report will also bring U.S. practice in line with either existing or emerging practice in much of the rest of the world. The rules of the European Union already require that the audit engagement partner sign the audit report as do laws in Australia and the United Kingdom. In addition, the International Auditing and Assurance Standards Board ("IAASB") has proposed a standard that is similar to that being proposed today and that, if adopted, will become the practice in the many countries around the world that follow IAASB standards.
We are aware, from previous rounds of comments, that there is some concern regarding the potential liability impact of this proposal for engagement partners and other firms. We have taken these views into consideration when formulating this proposal that the engagement partner's name be disclosed in the audit report, rather than that the engagement partner actually personally sign the audit report in his or her own name. We believe this method of disclosure will make the information readily available to the users, but will avoid at least part of the liability exposure that could be caused by requiring the engagement partner to sign the report. We have also assumed in our analysis of these proposed amendments that when an audit report is used in connection with a filing under the Securities Act of 1933, the persons or firms named in the audit report (in addition to the principal audit firm that must already consent to inclusion of its name in the filing) would have to file a consent to inclusion of their names in the filing, with its intended potential for liability under Section 11 of the 1933 Securities Act.
We are seeking comment on questions as to whether naming the engagement partner and other participants in the audit will increase the liability of such persons under U.S. law, particularly U.S. securities laws. The Board's proposal contains an extensive analysis of the liability issues, particularly under Section 11 of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934. The issues are complex, and evolving, but the Board's preliminary conclusions which I support are that any potential increase in the liability of named engagement partners or firms is likely to be modest if there is any increase at all, and does not outweigh the benefits of the greater transparency surrounding the audit that will be afforded investors and other financial statement users by these changes. We look forward to commenters views on this point.
This reproposal is one part of an effort by the Board to increase both the transparency and the usefulness of the audit to investors and other financial statement users who do not have the same level of access to the auditors that issuers and their audit committees presently have. It complements the Board's project on changes to the auditor's reporting model and to its efforts to improve the usefulness of the periodic summary reports that the Board issues on its inspection findings.
In closing, I want to express my gratitude to the hard-working staff of the Office of the Chief Auditor, the Office of the General Counsel and the Office of Research and Analysis who have now been engaged in this project for more than four years, and specifically to Jessica Watts, Jennifer Rand, Lisa Calandriello, Ekaterina Dizna, Karen Burgess, Morris Mitler, Andres Vinelli, John Powers, Jacob Lesser, and Mary Peters. As usual, the staff of the Securities and Exchange Commission has provided thoughtful comments on the draft and the project as a whole. As mentioned above, I support issuance of this reproposed standard and look forward to the public comments on it.