As we approach the twentieth anniversary of the enactment of the Sarbanes-Oxley Act, we have an exciting task ahead of us: to modernize and streamline our standards and rules to meet the modern-day challenges and complexities, and to do so in a manner that continues to put our investor protection mission front and center. This is the first standard this newly constituted Board has had the opportunity to consider.
The amendments before us today are intended to improve the lead auditor’s supervision of other auditor’s work and help ensure that sufficient appropriate evidence is obtained to support the lead auditor’s opinion in the audit report. Enhancing the lead auditor’s supervision of other auditors, including through better coordination and communication, should result in increased investor protection by improving the lead auditor’s ability to prevent or detect deficiencies in the work of other auditors before the audit report is issued.
I support the recommendation before us to adopt amendments to modernize these PCAOB standards, including adopting a new auditing standard, that strengthen the requirements applicable to audits involving accounting firms and individual accountants outside the accounting firm that is issuing the audit report on a company’s consolidated financial statements.
Companies continue to increase their global presence. As a result, the use of other auditors has become more prevalent in the conduct of an audit, which can create additional challenges for the lead auditor.
Adding other auditors into the process requires careful consideration and clear communications between all auditors involved in the audit. And when miscommunication occurs or when there are misunderstandings about the nature, timing, and extent of the other auditor’s procedures, audit quality will likely suffer.
As we have observed, some audit firms in recent years have improved their approach to supervising the work of other auditors. We also, however, continue to see enforcement cases and inspection deficiencies that point to failures by certain lead auditors overseeing the work of other auditors. These observations indicate that there is room for improvement, and that investor protection could benefit from the lead auditor’s increased involvement in and evaluation of the work of other auditors.
These amendments provide sufficient flexibility to address advances in technology, such as advancements facilitating the communication between the lead auditor and other auditors. This should empower audit firms to develop and use technology that improves the overall interaction between the lead auditor and other auditors to the extent that these advancements in technology lead to improved audit quality.
In addition to our research and oversight activities, the amendments we are considering today have been informed by responses we received to three comment requests that were issued over the course of the other auditor’s project. I am pleased we are moving forward. Thank you to all that have provided us with comments along our journey.
As noted earlier, this is the first rulemaking before this Board. The first of what I expect to be many more to come as we work together to advance our standard-setting agenda. I would like to take a moment to thank my fellow Board members and their staff for their collaboration on this project.
I would also like to recognize and thank the incredible staff of the PCAOB, without whom we would not be here today. I would like to especially recognize the individuals currently working on the project team—from the Office of the Chief Auditor: Barb Vanich, Dima Andriyenko, Stephanie Hunter, Andrew Cleve, and Hunter Jones; from the Office of Economic and Risk Analysis: Michael Gurbutt, Tian Liang, and John Powers; and from the Office of General Counsel: Drew Dropkin and Vince Meehan.
Lastly, I would like to thank the Securities and Exchange Commission’s staff for their support and assistance.