- Securities and Exchange Commission (SEC) Chair Gary Gensler has asked the Public Company Accounting Oversight Board (PCAOB) Chair Erica Williams to consider adding auditor independence standards to its agenda and the SEC itself may need to take a “fresh look” at its own rules on the independence issue, Gensler said during a webinar Wednesday.
- SEC staff has seen “situations of decreased vigilance” when it comes to auditor independence and Gensler expressed concern that conflicts of interest stemming from auditors and affiliated firms serving the same client persist 20 years after the Sarbanes Oxley Act directed the SEC to take steps to create stronger barriers between auditors and other parts of their firms, he said.
- “A number of firms spun out their consulting businesses in the days shortly before and after Sarbanes-Oxley. Over the past 20 years, however, many of these firms went on to rebuild them again. PCAOB inspections continue to identify independence — and lack of professional skepticism — as perennial problem areas,” Gensler said.
Gensler spoke during a webinar hosted by the Center for Audit Quality commemorating the 20th anniversary Sarbanes-Oxley Act, which established the PCAOB in the wake of the Enron and WorldCom accounting scandals to oversee accounting firms that audit public companies.
The SEC chair has been shaking up the oversight of auditors for some time, ousting William Duhnke as PCAOB chair last year. Last fall SEC Acting Chief Accountant Paul Munter underscored the importance of independent audits as an investor safeguard, saying that an auditor that provides extensive non-audit services to an entity that has an active mergers and acquisitions business model must continually monitor the impacts of all such transitions on its audit engagement to ensure that the auditor remains independent of all of its audit clients.
During the talk Gensler was also critical of the sluggish pace at which PCAOB has undertaken the responsibility that it was given to update interim standards that it inherited from the American Institute of Certified Public Accountants.
“Historically … the PCAOB has been too slow to update auditing standards. Twenty years later, most of those interim standards remain,” Gensler said. But he expressed confidence that Williams, who took over as chair of the U.S. audit watchdog in January, and the board would “live up to Congress’s original vision with respect to standard-setting. I hope we can make some progress before Sarbanes-Oxley can legally drink.”
In May the PCAOB announced plans to update almost all of the remaining interim standards.