Thank you. I am pleased to support this Supplemental Request for Comment. Before I discuss the Request for Comment itself, I’d like to thank all of the members of the PCAOB staff who have worked so hard to get us to this point, particularly the staff in the Office of the Chief Auditor, the Office of Economic and Risk Analysis, and the Office of the General Counsel. This is an important amendment and proposed standard, and I thank you for carefully and thoughtfully considering the comments that we have previously received, as well as the PCAOB’s experience and observations in inspecting audits involving other auditors.
I’d like to specifically thank Barb [Vanich], Lillian [Ceynowa], and Stephanie [Hunter] for presenting the recommendation today.
When the PCAOB was formed in 2003, the Board adopted section 543 of the AICPA’s Statement on Auditing Standards No. 1. This rule was later renumbered in the PCAOB’s auditing standards as AS 1205 and titled Part of Audit Performed by Other Independent Auditors. But section 543 wasn’t new at the time that the Board adopted it in 2003. It was codified by the AICPA in the early 1970s. Similarly, the standard that would be renumbered as AS 1201, Supervision of the Audit Engagement, was adopted in 2010. Needless to say, businesses and audits have become much more global since 2003 or 2010, and dramatically more so since the early 1970s. Although there have been a few amendments to these standards along the way, it is time for comprehensive amendments to modernize our standards to reflect the changed business and auditing environment.
In 2020, lead auditors worked with other auditors in 69% of audits of Fortune 500 companies and 57% of audits of large accelerated filers. Often, on large company audits, many other auditors are involved. The use of other auditors is now a common practice, and other auditors often audit important aspects of the issuers’ businesses. At the same time that businesses have become more global, we’ve learned new and better practices for conducting audits across the world involving other auditors.
These improved practices are critically important because the use of other auditors can present substantial risk. Using other auditors can create communication challenges because of geographic separation, language barriers, different auditing practices adopted by other firms, and differing levels of understanding of the company being audited and the PCAOB’s auditing standards. Each of these difficulties can result in miscommunications and misunderstandings about the risks of material misstatement and the work being performed to address those risks.
However, the lead auditor ultimately bears the responsibility for the audit, and it is important to update and enhance the lead auditor’s planning and supervision responsibilities accordingly. The rule amendments seek to thereby strengthen audit quality.
As we’ve seen, the use of other auditors is pervasive and sometimes risky, so this is a key area for protecting investors. I’m pleased that today we are moving closer to the adoption of new and amended standards to address these issues, and I encourage the new Board and the Securities and Exchange Commission to move forward promptly with these standards. Updating these standards is important to advancing audit quality and represents the type of crucial work that is core to fulfilling the PCAOB’s statutory mandate, and should remain a top priority for the incoming Board. I also encourage the public to comment on today’s Supplemental Request for Comment. Your input is crucially important.
Finally, I would like to acknowledge that today will be my last open meeting as a Board member. It has been an honor to serve in this role. Thank you to the PCAOB’s staff for your efforts to protect investors. On a personal note, I want to extend my heartfelt thanks to Rebecca Mealey, who served as my advisor during my first year as a Board Member; Jill Boocock, who has been my executive assistant throughout; and a special thank you to Martha Kidd, who has been my counsel and advisor also throughout my term. I will forever be grateful for your assistance, advice, support, and friendship.Thank you also to my fellow Board members. I am proud to have served alongside of you.