Securities and Exchange Commission chair Gary Gensler said the US audit regulator has been slow to update its rules, in a speech marking the 20th anniversary of the law that created it.
The Public Company Accounting Oversight Board, created as part of the Sarbanes-Oxley Act, continues to work with interim standards that it was allowed to use from the American Institute of Certified Public Accountants, a professional association whose guidelines and rules are often used as fallbacks for the industry.
“The expectation was that the board would produce a more appropriate set of standards going forward,” Gensler said on 27 July at an event hosted by the Center for Audit Quality, a US accounting-industry group. “Historically, though, the PCAOB has been too slow to update auditing standards.”
Gensler, during the speech, also said the Chinese government needs to decide whether to comply with US law in order for Chinese companies to remain listed on US stock exchanges. The issue arose after the US passed a law that bans foreign businesses from its exchanges if their auditors haven’t been inspected by the PCAOB for three years in a row.
Erica Williams, who became the PCAOB’s chair in January, in recent months has been working with other board members and staff to advance the body’s strategy. The PCAOB in May said it would craft proposals this year on audit quality controls and auditors’ consideration of potentially illegal acts in the audit by their clients.
The watchdog last month adopted a rule strengthening the requirements for lead auditors in supervising other auditors outside their firms, the first standard to pass under Williams.
The SEC in November appointed four new board members to the PCAOB, including Williams, after firing the former chair, William Duhnke, and moving to replace the board in June 2021.
“While they have their work cut out for them, I believe that chair Erica Williams and the Board can live up to Congress’s original vision with respect to standard-setting,” Gensler said.
Gensler has previously said the PCAOB wasn’t living up to its role as a setter and enforcer of auditing standards.
Williams and the board have laid out an aggressive standard-setting agenda and she welcomes Gensler’s support as they work to modernise and strengthen its standards, a PCAOB spokesperson said.
Gensler said in the 27 July speech that US audit quality has improved since 2002 but noted that certain areas, such as auditor independence, are still lacking. Gensler said he has asked the PCAOB to look into updating audit independence standards and said the SEC might need to take a fresh look at its own auditor independence rules.
The US securities regulator in 2020 gave auditors more discretion in assessing conflicts of interest in their relationships with businesses they audit. The PCAOB’s rules are currently aligned with those of the SEC.
Gensler also urged audit firms to review and enhance their independence protocols with respect to their auditing and consulting practices. “Given the growth in the size and complexity of non-audit services, it is important that audit firms maintain a culture of ethics and integrity — placing the highest priority on auditor independence throughout the firm, not just in the audit practice,” he said.
EY is considering a breakup of its business into separate audit and consulting businesses that will provide audit and advisory services to clients.
Write to Mark Maurer at [email protected]
This article was published by Dow Jones Newswires, a fellow Dow Jones Group title