September 21, 2020

The PCAOB Hopes To Check Audit Partner Naming Off Its To Do List This Year

The PCAOB has plenty to do, not least of which protecting the investing public and making sure those pesky auditors check the right boxes in their pursuit of passable audits.

But now we have an idea what, specifically, they're working on through the end of the year. Forgive the screenshot, cutting and pasting from a PDF is sloppier than a Grant Thornton audit:

The big one here is #4: partner naming. We have previously discussed alternatives to naming audit partners (personally, I liked the cattle brand on the ass idea) but it looks like the PCAOB is gunning full steam ahead on this one.

Of course, certain stakeholders who shall remain nameless (at least until the PCAOB requires them to be named har har) are totally against this because all it does is increase liability (and?) while making very little difference in audit quality. Because, as the Internet has taught us, anonymous comments are just as high quality as those which require one to sign their name.

For example, PwC's view is that they are down with transparency but, uh, would prefer a method not as transparent as the audit report to accomplish that:

Consistent with PwC’s previous response to the original proposal, PwC recognizes that many users ascribe value to such information. PwC continues to support transparency, through means other than identification in the audit report itself, of the name of the engagement partner, when coupled with the name of a member or members of firm leadership. PwC also supports providing the prescribed information about Audit Participants through means other than inclusion in the audit report.

PwC continues to believe that the perceived benefits of including information about the engagement partner and Audit Participants in the audit report itself are substantially outweighed by the significant potential litigation risks and costs that this creates and the practical difficulties created by the requirement to obtain consents.

Funny since the lead partner on PwC's ArthroCare audit — who was not named on the audit report — just settled with the PCAOB for screwing up that audit.

EY said essentially the exact same thing in their comment letter:

We support the PCAOB’s efforts to enhance transparency about the auditor’s role and responsibilities, including the PCAOB’s initiative to revise the auditor’s report to provide investors and other financial statement users with information on matters that the auditor considered to be most important to the audit. We continue to support the identification of accounting firms that have a significant role in the execution of the audit and while we believe such information may be useful to investors and other financial statement users, we believe this information should be provided outside of the auditor’s report.

However, as we have previously commented, we do not support identifying the engagement partner in the audit report or in a public filing with the PCAOB. In our view, identifying the engagement partner will result in operational challenges, as a result of legal requirements in connection with public offerings that will, of necessity, increase the costs, complexity and amount of time required for a company to access the capital markets, but will not provide meaningful additional information to investors that will offset such costs and challenges. We also believe that this proposal will not improve audit quality and will likely have potentially negative effects on the profession.

We could keep going here but what would be the point? We already know what the other firms had to say.

One CFO in support of the idea published the names of his auditors in his company's proxy statement recently, calling liability concerns "BS." Apparently, the sky did not fall and the auditors did not turn to a pillar of salt.

We will keep you abreast of any and all developments.

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