Auditors are objecting to recent proposals by the Public Company Accounting Oversight Board (PCAOB), saying that the new requirements will expand their roles beyond their specialty, The Wall Street Journal reported.
The auditors claim that new reporting requirements by the PCAOB, under which firms would have to report cybersecurity risks as well as data ranging from auditor retention to partner involvement and work experience, would burden them with unnecessary extra work. Many investors argue that the proposals would help provide the transparency they have long sought.
While auditors generally support the board’s efforts to modernize auditing standards under Chair Erica Williams, they believe that three recent proposals would encumber firms with added work and costs as they struggle to find and keep skilled personnel.
“If they were to go through with all of these proposals, I think it would be a radical overhaul of the profession,” said Allison Henry, vice president of professional and technical standards at the Pennsylvania Institute of CPAs, in an interview with the Journal.
Auditors are particularly opposed to the PCAOB's proposal to amend its current standards related to the auditor’s responsibility for considering a company’s noncompliance with laws and regulations, including fraud.
“Auditors are CPAs, not legal experts,” PCAOB member Christina Ho said in her dissent to that proposal, the Journal reported. “The new requirements will significantly expand auditors’ need for expertise from lawyers, legal experts and possibly other specialists, resulting in a substantial increase in audit fees.”
Several audit firms called for the PCAOB to issue a revised proposal.
The PCAOB recently unveiled two more proposals. One would require firms to report 11 new data points, ranging from auditor retention to partner involvement and work experience. The other proposal focuses on cybersecurity risk and audit fees.
Ho has said that the board’s “apparent zeal” in issuing new burdens and responsibilities “may end up breaking the public company auditing profession’s back.”
“If we ‘break’ the profession in the name of investor protection,” she said,“are we really protecting investors?”
In letters to the PCAOB, at a recent roundtable and in interviews, auditors have argued against the proposal that could make them responsible for detecting and heading off corporate malfeasance. Auditor independence could also be harmed, they say, arguing that the skills and legal expertise needed are beyond their professional abilities.
Investors want auditors to be more skeptical of management’s work, in particular whether executives have sufficiently assessed that there are no significant errors in their financials, said Sandy Peters, senior head of advocacy at the CFA Institute.
“If management doesn’t have a complete list [of laws relevant to their operations], but has a process that’s reasonable, I think that’s something that we want auditors to look at,” Peters said at a PCAOB-led roundtable on the issue last month. “And it may require they use legal expertise.”
Ninety-one percent of investors would accept some increase in costs to bolster auditor responsibilities under the compliance proposal, with a majority saying they wanted no more than a 30 percent increase, according to a February survey by the Center for Audit Quality, a professional group, as reported by the Journal.
“We don’t want transparency at any cost,” said Amy McGarrity, chief investment and operating officer at Colorado Public Employees’ Retirement Association, a pension fund, and a member of the PCAOB’s investor advisory group, in an interview with the Journal. “We want relevant regulation that’s going to improve outcomes.”
Professional groups will likely continue to fight the compliance proposal and perhaps even seek legislation to clamp down on the PCAOB, said Henry at the Pennsylvania Institute of CPAs. The compliance proposal could become a rule sometime before the end of this year.
“Even if it’s enacted, we need to continue to push back,” she told the Journal.