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PCAOB Proposes New Form for Identifying Audit Engagement Partner

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Jun 30th 2015
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The Public Company Accounting Oversight Board (PCAOB) is asking for comments on a new approach it is taking to make public company audits more transparent.

The PCAOB on June 30 issued a supplemental request for comment on whether audit firms should be required to file a new form to make public the identity of the audit engagement partner, as well as information about certain other participants in the audit.

The new form, PCAOB Form AP, would be an alternative to the board's 2013 proposal that calls for public accounting firms to disclose in the auditor's report the name of the engagement partner.

Currently, auditor's reports generally disclose only the name of the firm issuing the report. There is seldom information on other firms that participated in the audit or information about the partner who led the work.

“With this request [for comment], I believe we are nearing our ability to bring US audits into line with international standards and practices that have proven effective for issuers, auditors, and investors alike in other markets,” PCAOB Chairman James Doty said during a meeting on Tuesday morning. “This proposal is a way to use the motivating power of our markets to incentivize higher-quality audits. But to do so, the markets need information.”

PCAOB Form AP, Auditor Reporting of Certain Audit Participants, would be created and put into service specifically as a public information vehicle, according to the PCAOB. Audit firms would use Form AP to disclose the name of the engagement partner on the audit, in addition to information about other independent public accounting firms and persons who took part in the audit.

“It remains to be seen how useful the information will be to investors, and we may not know the answer to that question until disclosure has been collected for a period of years and put into context by investors, data aggregators, the media, and others. But in light of investor demand for the information, it is appropriate for us to provide it, assuming that the negative consequences do not outweigh the positive,” board member Jay Hanson said on Tuesday. “I believe that disclosure on a separate PCAOB form, rather than in the auditor's report, would accomplish that goal, but I look forward to hearing from commenters on whether they agree.”

All Forms AP would be posted and made searchable on the PCAOB's website. In addition to filing Form AP, auditors could also voluntarily provide the same disclosures in the auditor's report.

“Form AP would provide investors and other financial statement users with the information they have continued to request – the name of the engagement partner and information about certain other participants in the audit – in a single, searchable database, giving the market valuable information while responding to concerns raised by accounting firms and others about the unintended consequences of such a disclosure in the auditor's report,” Martin Baumann, PCAOB chief auditor and director of professional standards, said in a written statement.

All of the PCAOB board members said on Tuesday they supported issuing the supplemental request for comment on Form AP. However, board member Steven Harris said he was concerned that the new proposal forces investors to go to another place, outside the audit report, to locate the engagement partner's name.

“The premise underlying previous proposals was that investors, if they were so inclined, could find the name of the engagement partner in the exact same place where they would learn about other details of financial statements and the audit – in the audit report,” he said. “As noted in the board's economic analysis, it could impose search costs on a user of the financial statements that decrease the benefits investors and other users may have received from our original proposal in 2011 and subsequent reproposal in 2013. In other words, what was intended as a service to the user could become a burden, as many users would have to look in more than one place in order to find pertinent information about the audit.”

The proposal the PCAOB issued in December 2013 would direct registered public accounting firms to disclose the name of the audit engagement partner in the auditor's report, but it would not require the engagement partner to be named in the annual report form, or Form 2, that is filed with the PCAOB, which differs from the board's original proposal in October 2011. The reproposal also would not require the engagement partner's signature as part of the disclosure process.

Comments on the Form AP disclosure alternative are due by Aug. 31.

Related articles:

PCAOB Reproposes Naming Engagement Partner in Reports
PCAOB Proposal Would Bring Great Transparency to Public Company Audits

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