PCAOB Board member J. Robert Brown, Jr., has issued a very strong statement objecting to the omissions and re-directions in the PCAOB’a new agendas. The introduction is excerpted below (footnotes omitted) and there is a link to the full statement at the bottom of this post.
In late 2017, the U.S. Securities and Exchange Commission (“SEC”) appointed an entirely new Board, giving the five new members the collective opportunity to develop a PCAOB 2.0.
In 2018, we issued a Strategic Plan that promised innovative oversight, including with respect to our approach to writing auditing standards. Consistent with our statutory mission, we explicitly committed, in doing so, to consider the expectations of investors. Last month, the PCAOB published its updated research and standard-setting agendas that will be its focus of attention and resources for the next 12 to 18 months.
The agendas do not, however, reflect the promises made in the Strategic Plan. With respect to investor expectations, the revised agendas mostly disregard them. The agendas removed matters repeatedly identified by investors as important – matters that have only grown in significance in a COVID-19 environment. What remains largely overlaps with the priorities of an international standard setter. While these priorities may be good ones, the goal of global alignment and coordination should not take precedence over the expressed interests of U.S. investors.
As for innovative oversight, the revised agendas mostly leave in place the remaining legacy standards adopted by the PCAOB on an “interim” basis in 2003. These standards were written by the audit profession during the era of self-regulation, with little input from the public and were sharply criticized during Congressional hearings.
The need to revise these out-of-date interim standards has become even more pressing with the PCAOB’s ongoing consideration of changes to the standards governing quality control (QC) systems at audit firms. In our Concept Release published in December 2019, we suggested that firms’ QC systems could have as an objective conformity with our existing standards. Given the dated nature of these interim standards, this objective could establish a low bar that does not ensure the quality of audits expected by investors and the public. The lack of adequate public participation by investors and the public weakens confidence and trust in the standard-setting process, which can harm our capital markets. Revisions of this magnitude and the imbedded policy decisions that they reflect should only occur after public debate, discussion, and feedback. As a result, I do not support the changes made to the agendas.Statement Regarding the PCAOB’s Revised Research and Standard-Setting Agendas: Reducing Credibility, Accountability and Confidence in the Financial Reporting Process