SEC Chair: Audit Quality Improving Since SOX

But Mary Jo White cautions that recent PCAOB inspections have found "significant deficiencies" and audit committees may be taking on too much work.
Matthew HellerDecember 10, 2015

Investor confidence in audited financial statements and independent auditors is “high,” but there are still too many cases of companies and their auditors failing to fulfill their obligations adequately, according to U.S. Securities and Exchange Commission Chair Mary Jo White.

In a speech Wednesday, White said there had been a general reduction in the number and severity of restatements of financial statements since the implementation of the Sarbanes-Oxley Act, reflecting in part “improvements in audit quality and the enhanced role that auditors generally now discharge in providing an essential check in the financial reporting process.”

“Significant credit for the increase in audit quality should be given to the [Public Company Accounting Oversight Board’s] inspection program and the enhancements it has made to some of the auditing standards,” she told the national conference of the American Institute of CPAs.

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“The PCAOB’s inspection findings on individual audit engagements and firm quality controls have resulted in many audit firms making significant improvements, which in some cases included structural or systems changes beyond the specific remedial actions required,” White added.

But in “the worrisome column,” she cited “too many instances where companies and their auditors have not discharged their responsibilities adequately under the securities laws and professional standards.”

Recent PCAOB inspections, White noted, have found “significant deficiencies” in auditing the effectiveness of internal control over financial reporting (ICFR); assessing and responding to risks of material misstatement; auditing accounting estimates; and work performed by audit firms other than the signing firm in cross‑border audits.

The SEC chair also expressed “growing concerns” over the amount of work required of some audit committees, saying it “may dilute an audit committee’s ability to focus on its core responsibilities.”

“When directors serve on multiple boards, including multiple audit committees, we must question whether they can do the job effectively,” she said, adding that companies and directors “should carefully choose who serves on their audit committee, selecting only those who have the time, commitment, and experience to do the job well.”