Statement on the Supplemental Request for Comment: Rules to Require Disclosure of Certain Audit Participants on New PCAOB Form

Before the Board today is another variation on proposals to provide transparency about the name of the engagement partner and information about certain other participants in the audit. With today's release, the Board will have issued releases for comment on this matter every two years, beginning in 2009, for a total of four releases.^[1]

Today's release asks for comments on an alternative to the Board's 2013 reproposal that called for disclosure in the auditor's report of the name of the engagement partner and information about certain other participants in the audit. The new alternative would require disclosure of this information on a new PCAOB form, Form AP, Auditor Reporting of Certain Audit Participants ("Form AP").^[2] It would also narrow mandated disclosures about nonaccounting firm participants in an audit and would eliminate mandatory disclosures about specialists engaged by an audit firm.

In my public statement on the Board's 2013 reproposal, I expressed support for the Board's objectives of providing information about participants in the audit process to investors and other stakeholders. However, I also expressed concerns over the extent of unanswered basic questions surrounding the Board's proposal, including:

• whether the Board had empirical and theoretical support for each of its stated objectives (transparency, accountability, increased audit quality, and even promoting competition among audit firms);
• whether the Board had fully analyzed the potential benefits and costs of its proposal; and,
• whether the Board was speculating about how its proposal met its multiple (and shifting) objectives and reflected the best approach among reasonable alternatives.

I am pleased that today's supplemental request for comment reflects a more complete and supportable preliminary analysis of many of these questions. It is unfortunate that it has taken so long to get to this point. Because the potential benefits and costs of the proposed disclosures, including potential consequences related to private litigation and liability, are difficult to quantify, the Board's economic considerations presented in Appendix 2 to the release are qualitative in nature.

In my view, the economic analysis accompanying this release is significantly improved in comparison to the 2013 release in that it presents more refined objectives that are accompanied by more thorough and supportable analysis, including improvements in the use of relevant empirical research. I encourage commenters to focus on the Economic Considerations presented in Appendix 2.

Although this supplemental request for comment focuses on the option of disclosing information in a new form, the Board continues to consider the bigger questions of whether to mandate disclosure and, if so, whether disclosure should be made in the auditor's report or on Form AP. The Board is considering trade-offs as it evaluates the potential of these two different disclosure mechanisms to achieve transparency and an increased sense of accountability.

I support the transparency and accountability objectives of this project. I also support the goal of finding a way to provide investors and other financial statement users with information that could add to the information available to them when evaluating individual audits.

As the Board continues to complete its analysis and deliberate on these key questions, I invite commenters to focus on the economic considerations in Appendix 2 and the detailed questions about the new alternative.

I thank the staff for their continued work on this proposal.