PCAOB May Propose Engagement Partner 'Disclosure' Tuesday

The Public Company Accounting Oversight Board is scheduled to vote tomorrow on whether to propose that audit firms should (1) disclose the name of the audit engagement partner in the audit report, (2) disclose the names of each audit engagement partner for each engagement reported in the audit firm’s Annual Report Form filed with the PCAOB, and (3) disclose the names of “other accounting firms and certain other participants that took part in the audit.”
 
Disclosure, vs. Signature
My two cents (see disclaimer posted on the right side of this blog):  I believe it is significant and intentional that the PCAOB’s press release announcing tomorrow’s meeting uses the words ‘disclosure’ and ‘disclose’ rather than the previously common vernacular of engagement partner “signature.”
 
The latter term ties back to the Final Report and recommendations published in 2008 by  the U.S. Treasury Advisory Committee on the Auditing Profession (ACAP), (see recommendation 6, Subcommittee on Firm Structure and Finances) which recommended that regulators, the auditing profession, and other bodies, as applicable: “Urge the PCAOB to undertake a standard-setting initiative to consider mandating the engagement partner’s signature on the auditor’s report), and to the PCAOB’s 2009 Concept Release issued for public comment, entitled, “Concept Release on Requiring the Engagement Partner to Sign the Audit.”
 
ACAP described the potential benefits from such a requirement as “increase[ing] transparency and accountability.”
 
As also recognized by ACAP, one of the most contentious issues surrounding a potential engagement partner signature requirement was whether the value-added by such a signature would offset any potential additional legal liability to that partner.
 
Additionally, concerns have been voiced in ACAP and at prior discussions of the PCAOB Standing Advisory Group about any unintended consequences other potential reputational risks arising from the association of one partner’s name (instead of the firm’s name generically, as is the case today) with one particular audit, vis-à-vis other audits headed up by that particular partner, as well as potential client’s consideration of taking on that particular partner and his/her firm, based on particular audits for which that partner signed off.
 
Some questioned the impact this could have on auditor’s behavior as well, not only in the desired direction of ‘accountability’ but on the flipside, potentially causing the opposite effect, in which some questioned whether putting their name on the line associated with ‘good’ and ‘bad’ audits could potentially cause an auditor to hesitate to cause a negative consequence to a client, since his/her name would be publicly attached to that particular client, and in turn impact other clients, the investing public, and regulator’s views about that partners’ other audit clients. 
 
Read more about the 'safe harbor' issue here.

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FEI Financial Reporting Blog provides highlights from SEC, PCAOB, FASB, IASB, and other regulatory news, including reporting under Sarbanes-Oxley Sect 404. It is written by Edith Orenstein, Director of Technical Policy Analysis at FEI

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