U.S. government’s audit watchdog PCAOB agreed to circulate a proposal that would require auditors to name the partner who signs off on a company’s books
December 8, 2013 Leave a comment
December 4, 2013, 3:06 PM ET
PCAOB Moves Ahead With Auditor Naming Proposal, Despite Reservations
Senior Editor
Following a heated debate Wednesday, the U.S. government’s audit watchdog agreed to circulate a proposal that would require auditors to name the partner who signs off on a company’s books. The U.S. Public Company Accounting Oversight Board voted unanimously but several board members raised pointed concerns about the plan to make auditors name their lead engagement partners on annual reports. The proposal will be open for public comment for 60 days and a final rule could be issued in the spring.“It holds the promise of improving audit quality by sharpening the mind and reminding auditors of their responsibility to the public,” PCAOB Chairman James Doty said at an open meeting to re-propose the rule in Washington.
Currently, annual “pass-fail” reports from corporate auditors list only the firm’s name. They don’t contain information about who served as the lead partner or whether the firm that issued the report completed all of the work. Large audit firms often subcontract with smaller firms, including audits of overseas subsidiaries of U.S. companies.
The PCAOB also proposed that auditors should name subcontractors if their work comprised more than 5% of the audit.
Even though all board members voted to put the proposal out for comment, some said they felt it had serious shortcomings.
Board member Jeanette Franzel said there is little knowledge about whether disclosure of auditor names would improve audit quality. Auditors may run into operational issues if a subcontractor doesn’t consent to having their name revealed.
Jay Hanson, another board member and a former auditor, said the information would be more useful if it was disclosed in annual PCAOB filings, rather than the auditor’s report.
Despite issues like these, PCAOB staff members said they expect increased transparency from such a rule would help the agency better identify audits it believes are at risk. For example, an audit partner who switched from working with small manufacturers to large multinationals might raise red flags.
Audit regulators have been working proposals to increase transparency since 2005. Some countries, including the United Kingdom, already require that auditors sign their names to annual reports. Mr. Doty says the proposal reflects a “compromise” since it requires only that the engagement partners be named. But based on the board’s own debate Wednesday, the agency should expect plenty of public comments.
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