The Public Company Accounting Oversight Board (PCAOB) voted to propose two new reporting requirements to impose on auditing firms, Accounting Today and The Wall Street Journal reported.
One proposal concerns public reporting of standardized firm and engagement metrics. The other concerns the PCAOB framework for collecting information from audit firms.
Under the proposals, firms would have to report cybersecurity risks as well as data ranging from auditor retention to partner involvement and work experience.
The firm and engagement metric proposal would require PCAOB-registered public accounting firms that audit one or more issuers that qualify as an accelerated filer or large accelerated filer to publicly report specified metrics relating to such audits and their audit practice, according to the PCAOB. The firm reporting proposal would amend the PCAOB’s annual and special reporting requirements to facilitate the disclosure of more complete, standardized and timely information by registered public accounting firms, Accounting Today reported.
“Sound and consistent information bolsters confidence in our capital markets, and can drive audit quality,” said PCAOB Chair Erica Y. Williams in a press release. “Informed by extensive study and stakeholder input, today’s proposals would strengthen PCAOB oversight and equip investors, audit committees, and others with clear, consistent, and actionable data related to the audit.”
The PCAOB voted unanimously to require hundreds of firms to publicly disclose a set of 11 metrics, ranging from auditor turnover to partner involvement, workload and work experience, the Journal reported. Firms would have to provide these metrics for both their individual audit efforts and overall audit practices, but there are exceptions.
The metrics “provide an important window into how a firm manages its resources and conducts its audits that, with context, will empower audit committees, boards of directors and others to hold firms accountable…[and] accountability begets quality,” said Williams, the Journal reported.
The firm reporting proposal represented the most substantial changes since 2008, the Journal reported. The PCAOB approved it by a 4-1 vote. Under the proposal, all firms would have to report the dollar amounts of various fees they receive from clients, rather than the percentages currently required. Firms that issue more than 200 audit reports annually and have more than 1,000 audit personnel would need to confidentially submit financial statements annually to the PCAOB. The Journal reported that six firms meet those criteria: Deloitte, PwC, Ernst & Young, KPMG, BDO and Grant Thornton
The proposal would also mandate cybersecurity disclosure for the first time. All firms would need to publicly describe their policies to spot and manage cybersecurity risks and would be required to confidentially report any significant cybersecurity events within five business days.
Government officials and investors have sought both sets of proposed changes for years in a bid for greater transparency from audit firms, according to the Journal.
Comments on both proposals are requested by June 7.
The public can learn more about submitting comments on PCAOB proposals and the PCAOB’s standard-setting, research, and rulemaking projects on the PCAOB website.