SEC Questions PCAOB’s Focus on Disclosure

If that emphasis is at the expense of PCAOB rule-making, “those priorities need to be re-examined," the SEC's chief accountant says.
Matthew HellerFebruary 5, 2015
SEC Questions PCAOB’s Focus on Disclosure

The U.S. Securities and Exchange Commission has again expressed concern about the performance of the Public Company Accounting Oversight Board, suggesting the audit regulator is focusing too much on promoting more disclosure to investors.

sec logoAt a budget meeting Wednesday, Commissioner Daniel Gallagher echoed recent comments by James Schnurr, the SEC’s chief accountant, that some of the PCAOB’s most important quality-control audit projects “have been moving too slowly.”

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“I’m a bit concerned the PCAOB’s limited standard-setting resources have been focused too heavily on disclosure projects,” he said, according to The Wall Street Journal. If that emphasis is at the expense of enacting rules focused on the details of how auditors should conduct an audit, he said, “those priorities need to be re-examined.”

The PCAOB has been working since 2005 to make auditors’ reports more transparent. As part of that process, it has proposed that the engagement partner be identified in the auditor’s report, which is included in a company’s 10-K.

The board should “update the standards that directly affect auditor performance,” Schnurr  said at the meeting.

PCAOB Chairman Jim Doty defended the agency, saying he believes it has struck a “good balance” between its work on the two types of rules. “We are addressing standards that seem to cry out and need being addressed in both those areas,” he explained.

But he also agreed that “the process can be improved,” noting that the board’s new budget includes a review of its standard-setting agenda.

As Reuters reports, some critics of the PCAOB have “questioned why it has only completed about 18 core audit standards and others have lingered on the agenda for years.” The audit industry, for its part, has been upset about Doty’s support for rule changes geared toward disclosure.

Big audit firms have raised concerns that naming the audit partner in the 10-K would increase their liability and could lead to complications and delays in the disclosure.

Doty said Wednesday that the PCAOB will soon seek comments on a potential compromise for the audit partner disclosure rule that would allow companies to disclose the information in a “Form 5” that would be filed no more than 60 days after the 10-K is issued.

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