Part of perpetually-acting PCAOB chairman Dan Goelzer’s speech at the AICPA’s Conference on SEC and PCAOB Developments had to do with the future and it kinda, sorta sounds like the Board might start asking for more than just the auditor’s opinion of yore. He spoke this afternoon at the conference, saying, “it is clear that there is considerable investor hunger for more insight from the auditor into the audit process and the company’s financial reporting. Further, the 2008 report of the Treasury Advisory Committee on the Auditing Profession recommended that the Board reconsider the audit report.”
What kind of ideas? Glad you asked!
The Board will have to make some difficult choices next year if it decides to change the time-honored pass/fail report. There is no shortage of ideas. During a discussion of the reporting model at our Standing Advisory Group meeting last April, some suggested that the auditor should provide more information about the audit itself and how it was performed. Others want the auditor’s views on the management judgments embodied in the financial statements regarding such things as estimates and the selection of accounting policies. Auditors have proposed that their reports should be clearer about limitations on the ability to detect fraud. Some users have suggested expanding the auditor’s current opinion to include new material; others have suggested that the pass/fail report should be accompanied by a separate auditor’s report akin to the MD&A.
Do investors really want to know how the audit sausage is made? Some auditors have trouble pulling things together so we see little up side there.
If you’ve got your own suggestions on making audits even better, feel free to share them at this time.
As we mentioned late yesterday, the PCAOB has been working hard these days. Late nights, weekends, ordering in and whathaveyou. Adrienne told you about the new eight auditing standards that you’re all expected to have memorized by Labor Day, and we wrapped up with Dan Goelzer snagging QOTD for the Board’s move towards open enforcement proceedings. This move will, presumably, be used in order to shame the pants off of those of you that dare to break the rules.
But the Board had one more thing to serve up yesterday and that was to put it out there that they don’t think too highly of the job auditors are doing supervising the worker bees:
“Through its inspections and investigations, the PCAOB has observed that supervision processes within firms are frequently not as robust as they should be, and that supervisory responsibilities are often not as clearly assigned as they should be,” said PCAOB Acting Chairman Daniel L. Goelzer. “Today’s Release seeks to highlight the Board’s views on the scope for using the authority provided in the Act to address those problems.”
For an industry that depends so heavily on a hierarchal structure, this does not bode well. There are several possible scenarios that led the PCAOB to jump in with their thoughts, including but not limited to:
1. Dozens of audit engagements of publicly traded companies have aloof partners that pop in once or twice a week, observe a handful of staff people feverishly ticking and tying, only to assume everything appears a-okay.
2. The PCAOB has incredible “luck” picking the biggest shitshow engagements.
3. The PCAOB is just blowing the shortage of experienced SAs out of the water.
4. Inspectors don’t buy the “we got this” story from the A1 and A2 running an accelerated filer engagement.
If you’re on one of these free-for-all audits, for crying out loud, get in touch. We want details.
“I believe the time has come for us to ask Congress to change the law and make our enforcement proceedings public, unless there is some good reason for a particular matter to be closed.”
~ Dan Goelzer, Acting Chair of the PCAOB, would like to get things out there.
“In the event that the PCAOB does not prevail – and the decision requires a legislative change – I would urge Congress to act quickly to fix whatever structural problems the Court identifies.”
~ Interim PCAOB Chairman Dan Goelzer, in testimony today.