The SEC today unanimously
approved the PCAOB's controversial
expanded auditor's report standard. As previously reported, the SEC was required to take some action on the proposal by October 26th.
Here is a key excerpt from
Chair Clayton's Statement:
As discussed in the Commission’s approval order, some commenters raised questions about the PCAOB’s rule. These questions included whether CAMs will result in an increase in litigation that does not benefit investors; whether CAMs will convey meaningful information specific to the audit or will instead provide boilerplate; and whether CAMs will chill auditor-audit committee dialogue. I am sensitive to these concerns.
In particular, I believe that the independent audit committee has emerged as one of the most significant and efficient drivers of value to Main Street investors. The audit committee’s key role in the oversight of the audit and the auditor, and in the integrity of a company’s accounting and financial reporting processes, has significantly enhanced financial reporting quality. Impairing or otherwise negatively affecting the work of well-functioning audit committees could have significant adverse effects on investors.
I would be disappointed if the new audit reporting standard, which has the potential to provide investors with meaningful incremental information, instead resulted in frivolous litigation costs, defensive, lawyer-driven auditor communications, or antagonistic auditor-audit committee relationships — with Main Street investors ending up in a worse position than they were before.
I therefore urge all involved in the implementation of the revised auditing standards, including the Commission and the PCAOB, to pay close attention to these issues going forward, including carefully reading the guidance provided in the approval order and the PCAOB’s adopting release.
In this vein, I am also pleased the PCAOB intends to monitor the results of implementation, including consideration of any unintended consequences. Post-implementation review of new standards, including the use of economic analysis tools, is an important component of high-quality regulatory decision-making. The phased effective dates for CAMs should facilitate some early-stage analysis through the PCAOB’s Post-Implementation Review (PIR) process, based on the experiences of large accelerated filers. Depending on the findings of this analysis, including an evaluation of unintended consequences, the Board should be open to making changes, if necessary, to the revised auditing standards, including to the effective date for companies other than large accelerated filers. Ultimately, I support a timely and effective PIR for these revised auditing standards, and it will be critical that this PIR is completed as soon as practicable. To this end, I have directed the SEC staff to assist as needed in that process.
See also these Statements from Commissioners
Piwowar and
Stein, and our recent prior reports
here,
here and
here.
Stay tuned to the weekly Society Alert for transition and implementation resources and guidance.