Thursday, August 11, 2011

PCAOB To Vote Next Week Whether To Issue Concept Release On Auditor Independence

The PCAOB will vote next week on whether to issue a Concept Release for public comment on Auditor Independence and Audit Firm Rotation. (For background, see our earlier post, PCAOB To Consider Mandatory Audit Firm Rotation.) The vote is set to take place at an open meeting Tues. Aug. 16 at 9:30 a.m.; the meeting will be webcast.

According to the PCAOB's press release announcing next week's meeting, the Concept Release being considered would address:

ways that auditor independence, objectivity, and professional skepticism could be enhanced, including mandatory audit firm rotation
I believe (please note the disclaimer on the right side of this blog) we can be reasonably assured that the PCAOB board will vote to issue the above Concept Release. In fact, I believe it is more likely than not that board's vote will be unanimous in favor of issuing the Concept Release.

The reason why I assert the above, is because a Concept Release is not formal rulemaking per se, but an early opportunity for public comment on an issue(s), which in turn provides insight to the PCAOB in determining if, when and how to go to the next step of proposed standard-setting.

Speaking generally, (not about this Concept Release specifically), if some matters described in a Concept Release elicit comment that a better solution would be through means other than new standard-setting - e.g., if a proposed solution appears to be burdensome and/or ineffective for a majority of audit firms/issuers/investors, and moreso, if it appears to be a solution in search of a problem; or if the perceived problem could be better addressed through enforcement of existing standards, or through improvements that can be achieved via best practices. Additionally, there is an interplay to be considered between the PCAOB's Auditor Independence standards, and those of the SEC. (As background, the SEC has some archived material on this subject, as of 2001.)

In considering the likely issuance of the Concept Release on Auditor Independence next week, and preparing comment letters thereon, it will also be important to consider potential changes not only to how audits are conducted, but also the product of the audit. In that vein, keep in mind the September 30 comment deadline for another Concept Release issued by the PCAOB earlier this year, on the Auditor's Reporting Model.

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