How Many Different Countries Have Auditing Firms Registered With Pcaob

It is a pleasure to be hither today in Knoxville at the University of Tennessee Corporate Governance Middle to discuss current issues and trends in public visitor auditing. I commend the Corporate Governance Center for its focus on issues that impact public policy.

This focus provides important input and new perspectives for regulators and others considering the public policy objectives of protecting investors and promoting the public interest in financial reporting and auditing.

I know in that location are many accounting students in the audience today, and I'm pleased that you have the opportunity here at the Corporate Governance Centre to focus on issues of public policy and investor protection, in addition to all the technical knowledge that you will demand to pass the CPA examination.

Before I get started, I must tell you that the views I express today are my personal views and do non necessarily reflect the views of the Public Company Accounting Oversight Lath, any other Board fellow member, or the staff of the PCAOB.

Today I will briefly talk over some historical perspectives that lend insight into the current country of the profession and the PCAOB'south role. I will as well provide details virtually the PCAOB'due south primal activities in conveying out its mission, including:

PCAOB-registered firms and their role in performing audits of U.Southward. issuers;
current PCAOB inspection activities and results;
examples of enforcement cases; and
the current hot topics in auditing standards.

Also today, I want to charge you with the duty of knowing that as members of the next generation of CPAs you lot will play a significant role in the effective operation of our capital markets. In fact, in your future career as a CPA, yous will become a member of a community, an ecosystem if yous will, responsible for producing reliable fiscal reporting with contained and credible audits. That is the essential duty of the profession. And academic experts, such as those here at the Corporate Governance Center, provide invaluable insights into the dynamics and pressures that bear upon practitioners and their regulators.

Throughout my oral communication today I volition discuss some current trends and meaning challenges in the bookkeeping and auditing profession. In facing such challenges, I believe that information technology is important for members of the profession to understand 1) the context around the auditing standards that y'all volition apply, 2) the ethical standards to which you lot should adhere, and three) the public policy issues of investor protection that will be the foundation for the professional judgments you lot will make on a daily basis. And, higher up all else, remembering that if you are working within or auditing a publicly traded company, your true customer is the investor.

The Importance of Historical Perspectives in Bookkeeping and Auditing

Let's start with some history. Students of accounting and auditing — or any other profession, for that thing — should understand the development of the major applicable theories and principles of their profession, and where those theories and principles are still discipline to tensions, reconsideration, and debate.

The history of the profession, the various public policy choices fabricated along the mode, and the tensions that arose during the many business cycles and crises accept framed the electric current governance and accountability model that supports our capital markets.

Although today I will focus mainly on recent and current issues, I want to emphasize the importance of studying the history of the accounting and auditing profession, the major bug that have been debated over the years, and the related responses and evolution inside the profession.

Accounting and auditing as they exist in the U.S. capital markets today are the outcome of a serial of actions taken by the Congress, the Securities and Exchange Commission, and the accounting profession over many years, beginning with the stock market place crash in 1929 and the Great Depression that followed.

After the loss of public confidence in the U.S. capital markets, a series of hearings were held in the U.S. Senate in 1933 and 1934 to examine the causes of the 1929 stock market crash and explore potential reforms. The key questions dealt with whether and how companies should provide investors with detailed financial statements, and what type of assurance could be provided to the public that those financial statements were reliable.

Over the intervening decades, there take been numerous studies, investigations, Congressional hearings and debates about reforms to the accounting profession. I won't enumerate those today. Only to illustrate the substance and magnitude of these activities, I volition refer y'all to a 1996 General Bookkeeping Office (GAO)^[one] review of the bookkeeping profession.^[two] Equally office of the review, the GAO identified major recommendations made from 1972 through 1995, and actions taken to improve bookkeeping and auditing standards and the performance of independent audits of publicly traded companies.

The report identified 27 major studies performed during those 23 years. The study summarized major recommendations in the areas of auditor independence, audit quality, accounting and auditing standards, and other reporting and auditor services. The GAO also pointed out areas where boosted progress was needed, including auditor independence, responsibility for detecting fraud, reporting on internal controls, and standard setting. Many subsequent studies were also conducted during the 1990s.^[3]

For the tape, let me say that, before I joined the PCAOB, I worked at GAO for 23 years, almost recently as managing director. One of my areas of responsibleness involved GAO'due south oversight and evaluation work dealing with the accounting and auditing profession.

Then in the late 1990s and into the 2000s, a massive number of financial reporting and auditing failures caused a plummet in confidence in fiscal reporting and in the integrity of the fiscal markets. Afterwards engaging in months of study in light of the meaning failures,^[four] Congress passed the Sarbanes-Oxley Act in July 2002^[5] to restore confidence in financial reporting and to improve the independence and quality of audits.

The Sarbanes-Oxley Deed and x Years Later

As we mark the 10^th anniversary of the Sarbanes-Oxley Act, information technology is important for you to understand the context and history surrounding your own "entry-point" into the profession.

One of the major tenets of fiscal reporting that underwent reconsideration during the debates leading up to the Sarbanes-Oxley Human action was the need for constructive oversight and monitoring of the fiscal audits that serve investors and the capital markets.

The fiscal reporting and auditing failures, corporate bankruptcies, and other major corporate scandals in the early 2000s — involving companies such as Enron, WorldCom, Sunbeam, Xerox, Waste Management, and Global Crossing, amongst others — highlighted pregnant bug in the model of accountant self-regulation and prompted Congress to re-examine the issue.

In guild to place for Congress the regulatory structure in place, the GAO depicted the complicated and — what information technology and the profession's own audit oversight body^[half-dozen] said was an — "ineffective" self-regulatory model.

U.S. Government Accountability Function, "Accounting Profession: Oversight, Auditor Independence, and Financial Reporting Problems," GAO-02-742R, pg. 13 (May 3, 2002). For an older, but more detailed description of the profession'southward cocky-regulatory framework, come across Public Oversight Lath, "Audit Quality: The Profession's Programme," available at world wide web.publicoversightboard.org.

Discover the key players in this model and their relationship to each other: public regulators, practitioners as self-regulators, and the lines of responsibility.

The system of auditor self-regulation shown in the bottom half of the graphic was replaced when Congress passed the Sarbanes-Oxley Act, catastrophe more 100 years of self-regulation by the public accounting profession in the U.s.. Ane of the primary purposes of the Act was to create the Public Visitor Accounting Oversight Board (PCAOB) to regulate public company auditors; enhance the independence of those auditors; improve public company financial reporting and responsibility; and provide more than straight SEC oversight of public company accounting standard setting.

Subsequently 10 years of experience implementing these changes to the regulatory framework, we are, one time again, in a flow of re-examination of the function, relevance, and reliability of fiscal audits in protecting investors and the public interest. This seems to be, in large role, a result of the most recent financial crunch.

At the PCAOB, we are reflecting on the Board'southward work and accomplishments, and what they tell u.s.a. about the current state of the profession and investor protection. We've had many stakeholders and members of the profession tell us that auditor independence and audit quality have been strengthened since the passage of the Sarbanes-Oxley Act, and nosotros also believe that audit quality has improved. We've also heard from public visitor audit committee members that they believe financial reporting and auditing processes have been strengthened.

However, more work needs to be done. Afterwards, I will talk over in more detail the results of our current inspections and enforcement efforts. What nosotros've learned throughout the history of the profession is that, we tin never let downward our guard on issues of audit quality and investor protection.

The Part of the PCAOB

The statutory mission of the PCAOB is to oversee the audits of public companies (issuers) to protect the interests of investors, and further the public interest in the preparation of informative, authentic, and contained audit reports. In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act^[7] amended the Sarbanes-Oxley Act to, amongst other things, vest the PCAOB with the authorization to oversee audits of banker-dealers.

The PCAOB has four primary responsibilities:

register public accounting firms that inspect issuers or banker-dealers;
establish auditing, independence, ethics, and quality command standards for registered public accounting firms;
conduct and report on regular inspections of registered public accounting firms that audit issuers or broker-dealers; and
acquit investigations and disciplinary proceedings in cases where registered public accounting firms or persons associated with those firms may accept violated certain provisions of the Sarbanes-Oxley Act, the rules of the PCAOB and the SEC, and other laws, rules, and PCAOB standards governing the audits of issuers, brokers, and dealers.

The PCAOB's responsibilities extend to registered public accounting firms that are located in the United states of america and in other jurisdictions around the world. Accordingly, the PCAOB works collaboratively with the relevant inspect regulatory bodies in other countries.

1. Registration

The Sarbanes-Oxley Deed and PCAOB rules require all U.Southward. and non-U.S. bookkeeping firms to register with the PCAOB if they perform audits or play a substantial role in audit reports of issuers, brokers, and dealers. PCAOB-registered public accounting firms have been given an of import role in the capital markets — to provide assurance to investors, owners, lenders and others that the audited companies' or banker-dealers' financial statements and related disclosures adequately nowadays the institutions' financial results in conformity with applicable accounting and disclosure standards and rules.

Conspicuously, reliable fiscal statements play a fundamental role in the financial markets, which are integral to the success and well-being of American households and businesses, the U.S. economy, and participants and stakeholders from around the world.

Approximately 2,400 firms are currently registered with the Board, of which about 1,500 are U.S. firms and about 900 are not-U.South. firms located in 84 countries.^[8] About 853 registered firms report that they inspect issuers or play a substantial role in auditing issuers, and another 518 firms report that they inspect brokers and dealers, but no issuers.[9] In total, nearly one,371 registered firms report that they currently inspect issuers or broker-dealers.^[10]

Some other 870 firms (nigh 525 strange firms and 345 U.S. firms) report that they do not audit issuers or banker-dealers, nor practice they play a substantial function in such audits. What almost them? Registration alone does not subject an accounting firm's activities to Lath oversight and in no mode serves equally an endorsement of the quality of services a firm is delivering to its clients. Some of these firms registered in the hope of acquiring public company or banker-dealer audit clients.

It is reasonable for the Lath to consider whether continued registration is appropriate for a business firm that has no interest in providing services that are within the scope of the Lath's mandate. I expect that the Lath may soon explore mechanisms to address firms that may fall into this category.

So what does the market place of issuers wait like and who performs their audits in the U.S.? Of the 7,762 issuers that filed reports with the SEC as of June thirty, 2012, and that received an inspect opinion in the U.S., near of them (4,633) are "not-accelerated filers," generally meaning that they had public float of less than $75 million. And about 1,504 issuers were "accelerated filers," with public bladder between $75 million and $700 1000000, and 1,625 issuers were "large accelerated filers" with at least $700 1000000 in public float. Of note, the "large accelerated filers" account for most 95 pct of the market capitalization of all U.Southward. issuers.

The 4 largest U.Southward. accounting firms audited 3,392 of these issuers, representing 97.half-dozen percent of the market capitalization. The next iii largest firms audited 655 issuers, nearly 1.5 percent of marketplace capitalization, and other U.S. firms audited 3,715 issuers, near 0.ix percent of market capitalization.

2. Inspections

The largest registered public accounting firms — those auditing more than 100 issuers — are inspected annually by the PCAOB. Firms that issue 100 or fewer audit reports each year are subject to inspection at least every three years.

The PCAOB as well inspects certain firms that audit broker-dealers under PCAOB's interim broker-dealer inspection plan.^[xi] This program is however in an "interim" stage, as the Board just received this authorization in tardily 2010 and is building the programme.

The inspection of issuer audits began in 2004. Unfortunately, PCAOB inspections continue to observe serious audit deficiencies in public visitor audits on a regular basis. Amidst areas of specific business organisation are bug related to professional skepticism, tone at the top, and supervision.

As accounting students, you probably hear these concepts oftentimes. As you enter your get-go jobs in the profession (whether as a preparer or an accountant), your daily lives will be very much afflicted by the tone at the top in your organization, your supervisors, and the caste of professional judgment that is used by your team.

During 2012, the PCAOB is inspecting nine firms that audited more than 100 issuers in 2011. Those firms are: BDO United states of america, LLP; Crowe Horwath LLP; Deloitte & Touche LLP; Ernst & Immature LLP; Grant Thornton LLP; KPMG LLP; MaloneBailey, LLP; McGladrey LLP; and PricewaterhouseCoopers LLP.

We also expect to consummate approximately 170 domestic firm triennial inspections and virtually 80 not-U.S. business firm triennial inspections. We are in the midst of our 2012 inspection flavour for these firms that performed audits in 2011, and have completed a substantial number of the 2012 inspections.

Nosotros have issued the majority of the 2011 inspection reports, and of these, nosotros go along to run across the high level of serious inspection findings similar to what we institute in the 2010 inspection reports (issued in 2011).

The findings are serious, and represent deficiencies that are of such significance that it appeared that many firms, at the time they issued their inspect reports, had failed to obtain sufficient, advisable audit evidence to support their audit opinions on the financial statements and/or the opinions on internal command over financial reporting. These findings are reported in the public version of the study, which is referred to as "Function I."

Common areas where we detect audit deficiencies include acquirement recognition, off-white value of financial instruments, testing and evaluating internal controls, related party transactions, the auditor's cess of and response to fraud risk, and the auditing of disinterestedness financing instruments, amongst others. Here are some examples:

Revenue Recognition. Inspection teams have found instances where firms failed to test, or sufficiently examination, sales transactions to determine whether revenue recognition was appropriate, including testing that persuasive show or an system exists, delivery has occurred or services have been rendered, the seller's cost to the buyer is fixed or determinable, and collectability is reasonably bodacious.

Fair Value of Financial Instruments. Inspection teams take observed situations in which firms failed to evaluate, or evaluate sufficiently, the appropriateness of management's valuation methods and/or the reasonableness of direction'south significant assumptions used in valuations.

Testing and Evaluating Internal Controls. These include deficiencies in auditing internal controls, including failures to exam, or exam sufficiently, controls that address the adventure of fabric misstatement, controls during the curlicue-forrard period, and controls that depend upon arrangement-generated data and reports. In add-on, inspection teams have identified failures to exam sufficiently the pattern and operating effectiveness of management review controls or perform procedures regarding the utilize of the work of others, such as internal auditors.

Related Party Transactions. Inspection teams accept observed deficiencies related to firms' failures to exam for undisclosed related parties or transactions with undisclosed related parties. Some firms failed to place and address the lack of disclosure of related party transactions.

Fraud Risk. Some firms identified fraud risks and then didn't sufficiently respond to those risks with appropriate audit procedures. In addition, staff identified deficiencies relating to firms' failure to test, or examination sufficiently, journal entries and other adjustments; failure to consider the run a risk of material misstatement due to fraud relating to acquirement recognition or to betoken why acquirement recognition would non be considered a fraud take a chance. In addition, inspection teams found deficiencies where the auditors failed to brand the required inquiries of the audit committee, management, and others as to their views about the take a chance of fraud.

Disinterestedness Financing Instruments. An area that is frequently problematic for smaller accountant firms is the audit work related to the issuer's use of disinterestedness financing instruments to compensate employees, vendors, and others. Many of these agreements and instruments contain circuitous terms and conditions that impact the fashion in which the instruments should be recorded and accounted for past the issuer. Inspections staff have plant many instances where firms neglect to perform procedures to obtain an understanding of the terms of the agreements in order to determine the appropriate bookkeeping and sufficiently exam estimates of fair value, including inputs, assumptions, and methodologies used in determining fair value.

Some other category of inspection findings deals with deficiencies identified in the business firm'south quality control system. Quality control deficiencies are reported in "Part Ii" of the inspection written report, which is not initially included in the public portion of the report, due to statutory restrictions. Quality command findings in "Part Two" focus on issues that may have caused the audit operation deficiencies reported in "Part I" of the report, too every bit other aspects of the firm's direction of its audit do that could negatively impact audit quality.

Some examples of areas of specific concern include problems in the areas of professional skepticism, tone at the top, and supervision. In public feedback on these issues, the Board has heard suggestions that professional skepticism should exist emphasized more in the education, grooming, and standard setting for auditors, as well equally in the firms' cultures, tone at the top, and systems of quality control.

Hither are some of the examples nosotros find of problems in these areas within inspect firms:

Lack of Professional person Skepticism. Some firms neglect to maintain appropriate professional skepticism when auditing key management estimates. For case, some firms failed to evaluate whether recent events (such as current economical atmospheric condition) or current-year transactions may constitute contrary information that needs to exist considered as part of the electric current year'south inspect work. Sometimes the deficiencies may result from the firm's professionals placing too much reliance on their cognition of the issuer obtained in prior years or atmospheric condition from prior years.

We take besides seen deficiencies in the auditing of direction'southward estimates where it appeared that the auditors placed too much reliance on the perceived expertise of the visitor'southward personnel and/or experts when evaluating direction's assumptions. In other cases, information technology appeared that firms overemphasized evidence that supported the company'southward conclusion, without evaluating contrary evidence that seemed to exist readily available to engagement team personnel at the time of the audit.

Nosotros have seen instances where it appeared that firms may take had a bias toward accepting direction'southward perspective, rather than developing an independent view or challenging management's conclusions. In a number of engagements, firms' support for significant areas of the audit consisted of management's views or the results of inquiries of management, without providing supporting evidence or caption of the basis for the firms' conclusions. Diagnosing the root cause of these kinds of failures can exist difficult. For case, failures to sufficiently evaluate management estimates may be acquired by incompetence, time pressures, insufficient staffing or supervision, misaligned firm incentives, or some form of cognitive bias, among other factors.

Tone at the Top. We find instances where business firm leadership, through its actions and messaging, accepted a duality of quality and operational objectives that were in conflict with each other, without sufficient accent on audit quality. This duality resulted in contradictory messages from the top. "High audit quality" was stated as an objective and embraced conceptually. Nonetheless, other cultural factors and business objectives, such as client satisfaction and retention, and firm revenues and profitability, were allowed to take precedence over audit quality at an operational level. In some cases, the firms' tone failed to clearly delineate, through effective and consistent messaging and actions, the priority of audit quality when it conflicted with other objectives. Sometimes this was evidenced in performance evaluations, where other business concern objectives were given weight when at the same time, the business firm failed to consistently reflect instances of poor inspect quality in staff and partner ratings.

Supervision. We take observed instances where firms appropriately designed their inspect plans, merely when they identified potential issues (eastward.g., exceptions or unexpected differences) while executing the plans, the audit teams did not appropriately change their plans to obtain the necessary evidence to support their conclusions on the recorded balances. For instance, teams did not expand their audit procedures to sympathise whether such issues indicated misstatements in the financial statements or, in some instances, they failed to investigate such potential issues beyond inquiring of management. These situations advise that senior members of the engagement teams may non accept applied a sufficient level of supervision and review over the piece of work performed.

Our inspection results identified a number of significant audit deficiencies in more complex or subjective areas where a greater degree of supervision and review would be expected, such as the auditing of direction estimates, goodwill and indefinite-lived intangible assets, and income taxes. The inspection observations suggested the possibility that more attending needed to be devoted to supervision and review activities in connection with audits of areas involving a high degree of judgment, management interpretation, and the application of complex accounting literature.

The Lath engages in constructive dialogue with firms to encourage them to improve their practices and procedures. Successful remediation and sustained improvements in audit quality are clearly the goals of this process. Fortunately, nosotros have seen most firms take their responsibilities for remedial efforts and improvements seriously.

Strange Jurisdictions

As I mentioned earlier, there currently are about 900 PCAOB-registered public bookkeeping firms in 84 other countries around the world. Since its inception, the PCAOB has conducted inspections in 40 foreign jurisdictions and this number continues to abound.

To conduct inspections effectually the world, the PCAOB works closely with our fellow regulators. These relationships have been helpful to both regulators in overseeing inspect quality. For that reason, it is important that we continue to constitute strong cross-border regulatory cooperative agreements wherever possible.

Notwithstanding the positive trends in international regulatory cooperation, however, the PCAOB continues to be prevented from inspecting the U.Due south.-related inspect work and practices of PCAOB-registered firms in certain European countries, Cathay, and — to the extent their audit clients have operations in China -- Hong Kong.

In terms of our inspections of strange firms, the Board has adopted a cooperative framework that allows the PCAOB to rely, to a caste deemed appropriate by the Board, on inspection or enforcement work performed by a habitation-land regulator. By developing cooperative arrangements and through coordination with our counterparts, the PCAOB endeavors to minimize administrative burdens and potential legal or other conflicts that non-U.S. registered firms may face.

Nosotros have establish that many countries accept adopted audit regulatory regimes modeled, at least in part, on the Sarbanes-Oxley Act and the PCAOB. Nosotros have also found that virtually of the PCAOB's counterparts identify audit quality concerns consistent with those constitute by PCAOB inspectors.

There are currently near 163 registered public bookkeeping firms in other countries that are affiliates of global inspect firm networks and as well subject to regular PCAOB inspection. As you know, this means that a global network may use a mutual brand name, but the firms comprising the network in different countries are separate affiliates.

At that place are another 73 firms in other countries that are non affiliated with big global networks and they are discipline to regular PCAOB inspection. Finally, there are 89 firms in other countries that practice not issue audit opinions for issuers that written report playing a substantial part in such audits. Unfortunately, a big number of these firms are located in countries in which the PCAOB currently is blocked from conducting inspections.

3. Enforcement

A 3rd surface area of PCAOB responsibility is conveying out its investigative and disciplinary regime. PCAOB's enforcement and investigations function is an essential chemical element of the Board'due south programs. Effective and robust enforcement is a critical tool in the scheme of protecting investors and the public involvement.

Our Division of Enforcement and Investigations initiates and completes investigations, and where advisable, litigates disciplinary proceedings in cases where auditors may have violated laws, rules, or standards under the Board'due south jurisdiction.

To engagement, 55 disciplinary orders take go final and were made public. That number is comprised of 48 settled disciplinary orders and seven adjudicated disciplinary orders.

In each enforcement case in which litigation is initiated, unlike many other regulators including the SEC, the PCAOB is prohibited by the Sarbanes-Oxley Act from publicly disclosing the allegations and the proceedings. This situation results in a variety of unfortunate consequences for investor protection and the public interest.

Disciplinary proceedings involving formal allegations of misconduct against xix firms and individual auditors are currently pending, but cannot be publicly disclosed. During the about contempo Congress, legislation was introduced (HR 3503 and Due south 1907) that would ameliorate the Sarbanes-Oxley Act to brand PCAOB disciplinary proceedings open to the public, but it has not moved forward.

The PCAOB Segmentation of Enforcement and Investigations considers all potential violations of law, rules, or standards, just certain matters attract particular attending. These include matters that are serious inspect failures, multiple inspect failures, fraud, and other knowing or intentional misconduct, such as non-cooperation:

Serious inspect failures are matters in which an auditor fails to obtain sufficient audit prove to satisfy the audit assertions in known high take a chance audit areas and fails to exercise due professional care and professional skepticism. In these situations, there is testify that the auditor was aware of, but disregarded, reddish flags or indicators suggesting an issuer'southward accounting may not have been correct, or the auditor failed to behave out key audit responsibilities.

Examples include:

failing to obtain any audit evidence to support material accounts or assertions;
failing to obtain or critically evaluate key inspect show in a mode that provides reasonable assurance as to its actuality or competency (e.thousand., letting the issuer's management control the confirmation process, or blindly relying upon management estimates);
declining to accordingly consider and pursue audit evidence that contradicts direction assertions or conflicts with other inspect prove;
failing to appropriately scrutinize of import management assertions;
failing to maintain auditor independence;
senior inspect personnel failing to meaningfully participate in the planning or supervision of an audit; or
failing to follow specific requirements in directly applicable auditing standards.

Numerous audit failures — These are matters in which an accountant repeatedly fails to obtain sufficient audit evidence to satisfy the financial argument assertions. In these matters we typically run across audit failures in different audit areas on dissimilar issuer audits covering multiple years of audits. Many of our small business firm settled matters fit this fact pattern. Such cases oft include quality control standards violations by the firm.

Fraud — The Division of Enforcement and Investigation aggressively investigates matters when information technology finds evidence of an auditor engaging in fraudulent misconduct. 1 instance of a fraud case would be an auditor issuing an inspect study when no audit was actually conducted. Also, the division scrutinizes situations where fraud resulted in textile misstatements by an issuer to make up one's mind whether the auditor fulfilled its obligations nether PCAOB standards in conducting the inspect.

Other knowing or intentional misconduct, including not-cooperation cases. Auditors who interfere with either the Board's inspection or enforcement process will be investigated and, where appropriate, subjected to a disciplinary action. Examples include improperly withholding information from, or providing false data to, the Board'southward Inspections or Enforcement staff; and fabricating or surreptitiously altering audit documentation.

4. Standards

The last category of PCAOB responsibility is its standard-setting function. The Board uses information obtained from various sources to evaluate the need for changes in auditing standards. The Lath also seeks input and advice from a wide variety of interested stakeholders -- including investors, auditors, representatives of public companies, members of the bookish community, and the PCAOB Continuing Advisory Group -- on means to improve audits.

Depending on the nature of the project, the Lath may upshot a concept release to solicit public comment on problems or potential new standards prior to developing a proposed standard for public comment. Information technology likewise may agree roundtable discussions and other public meetings to deepen its dialogue with commenters and other interested parties.

The Board works closely with the SEC, which must corroborate all PCAOB standards. The Board also monitors the piece of work of international and foreign audit oversight bodies, equally well as accounting standard setters, such every bit the Financial Accounting Standards Lath, for developments that may affect auditing.

The Board currently has a full agenda and is seeking views on ideas and specific proposals impacting auditing and related professional do standards:

Concept Releases — The Board is currently evaluating comments and feedback on two concept releases it issued in 2011, one dealing with the accountant's reporting model and some other with accountant independence and mandatory business firm rotation. These are issues that accept been debated over decades in the profession, and are examples of the re-test happening in the current environment.

Auditor's Reporting Model - The Board sought public comment on potential changes to the auditor's reporting model, which could include a supplement to the auditor's report in which the auditor would be required to provide additional information well-nigh the audit and the auditor'south view of the visitor's fiscal statements (an "Auditor's Discussion and Analysis"); required and expanded use of emphasis paragraphs in the auditor's report; auditor reporting on other information outside the financial statements; and/or clarification of sure language in the auditor'southward report. Staff is currently evaluating options for a proposed standard.

Accountant Independence and Audit Firm Rotation — The Lath sought public annotate on a diversity of possible approaches to improving auditor independence, objectivity and professional skepticism. The give-and-take of potential measures that could enhance auditor independence includes whether a rotation requirement would risk significant cost and disruption and how it might serve the Board's goals of protecting investors and enhancing audit quality. The Board held iii public meetings in various regions of the country in March, June, and just terminal week to obtain further input. The Lath will consider next steps and priorities related to this project during 2013.

New standards — The Board recently approved a new auditing standard and is evaluating three proposed standards that it previously released for public annotate.

Communications with Audit Committees — On Aug. 15, 2012, the Board canonical, Auditing Standard No. 16, and has submitted the new standard to the SEC for approval.

Audits of SEC-Registered Brokers and Dealers — On July 12, 2011, the Lath proposed standards dealing with (1) examination engagements for compliance reports, (two) review engagements of exemption reports, and (3) auditing supplemental information. Further activity on the Board'south proposals is dependent on the SEC'southward adoption of the proposed amendments to its Substitution Act Rule17a-five, which is in procedure at the Commission.

Inspect Transparency — On Oct. xi, 2011, the Board proposed amendments to its standards that would meliorate the transparency of public visitor audits by requiring that inspect reports disclose the name of the engagement partner, also as the names of other independent public accounting firms and other persons that took role in the audit. The Lath is evaluating public comments submitted on the issue.

Auditing Related Political party Transactions — On February. 28, 2012, the Board proposed a new standard, Related Parties, as well as amendments to certain PCAOB auditing standards to assist auditors in detecting and addressing the audit risks associated with related parties and other unusual transactions. The Board is evaluating public comments submitted on the issue.

Potential hereafter projects: The Board is besides because possible revisions to standards to strengthen and clarify requirements in the following areas:

auditors' use of specialists;
when role of the audit is performed by other auditors;
the assignment and documentation of business firm supervisory responsibilities;
off-white value measurements;
going concern;
confirmation;
quality command;
the codification of PCAOB standards; and
subsequent events.

As y'all can see, the PCAOB is working on an ambitious agenda including numerous areas of audit practice aimed at strengthening auditing standards themselves, while improving audit practices and approaches.

Conclusion

In conclusion, I want to say that, as bookkeeping students, you have chosen to enter a profession that is rich in history and plays a meaning role in the constructive functioning of our majuscule markets. Throughout your career, y'all will be faced with multiple and often-times competing pressures, every bit well equally difficult professional judgments. If y'all are working within or auditing a publicly traded company, you lot must call up your client is the investor.

Once y'all have passed the CPA examination and take entered the profession, I urge you to spend some boosted fourth dimension and try to written report the context effectually the standards that yous are using, the ethical standards to which yous should adhere, and the public policy problems of investor protection that will exist the foundation for the professional judgments you brand on a daily basis.

I wish you lot all the best in your future careers every bit CPAs.

For those of you who choose to focus on research and teaching, such as the professors on the kinesthesia hither at the Corporate Governance Center, I cannot overstate the importance of your assay and insights into how practitioners acquire and utilize professional person standards. Together, nosotros take an obligation to empathize as all-time nosotros tin can the dynamics and pressures affecting the accounting and auditing profession and the different regulatory and other means to address them.