WASHINGTON, D.C.— Stephen Hall, Legal Director and Securities Specialist, issued the following statement on the SEC’s vote to adopt the Public Company Accounting Oversight Board’s (PCAOB) new rule imposing quality control standards on auditors.
“The PCAOB is responsible for ensuring the auditing profession fulfills its duty as a critical gatekeeper for accurate and complete financial statements from public companies. Those disclosures are the lifeblood of our securities markets, representing some of the most important information that investors rely on when deciding how to allocate their funds. However, the PCAOB’s current Quality Control Standard is deficient and should be strengthened to adequately protect investors from inaccurate or misleading financial statements. The PCAOB’s new rule begins to address many of these issues, but the Board and the SEC must go further.
“It is the PCAOB’s responsibility to ensure that audit firms perform their gatekeeping function effectively and transparently. One of the most important ways the Board does this is through its quality control standards. It is incumbent on the PCAOB to maintain quality control standards that maximize audit quality and accountability and to ensure that these principles are rigorously applied throughout the entire audit process.
“Fortunately, the PCAOB’s proposed revisions to the Quality Control Standard are a step in the right direction, and we are pleased that the SEC has voted to approve them. We agree with the Board and the SEC that updated quality control standards are long-overdue, but we are disappointed that the proposed standard does not go further to sufficiently ensure high-quality audits or adequate transparency and accountability.
“There is compelling evidence that stronger quality control standards are necessary. As we have long argued, significant deficiencies repeatedly appear in the audit process. Although the updated Standard is an improvement from the status quo, the PCAOB should therefore revisit this proposal with the clear objective of proposing a Quality Control Standard that better prioritizes audit quality, transparency, and accountability. This includes realigning quality control standards to incentivize higher performance beyond mere compliance and reconsidering the lack of meaningful disclosure about a firm’s quality control system. The simple truth is that trust and accountability are only made possible with adequate transparency.
“We commend the SEC and PCAOB for striving to enhance these important quality control standards, but we urge them to continue seeking further improvements going forward.”
You can find our comment letter on the PCAOB proposal here.
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