Investment Company Notebook

Practical insight and analysis on the accounting, audit and tax issues impacting investment companies.

An Audit Partner Asks… What Are the True Drivers of Audit Quality? Reaction to the PCAOB’s Adoption of New Rules Requiring Engagement Partner Disclosure

Subject to the approval of the SEC, new PCAOB rules will require individual audit partner disclosure on audit reports issued after June 30, 2017, along with other information regarding other accounting firms participating in the audit. The disclosure will take place in a filing separate from that which includes the Report of the Registered Public Accounting Firm - Form AP.

AbacusThis disclosure has been hotly debated over the last several years.  The PCAOB, originally acting on the recommendation of the Department of Treasury’s Advisory Committee, began the rulemaking process in 2009 with a concept release.  The release suggested that transparency, chiefly disclosing the name of the engagement partner leading an audit, would incentivize audit quality.  Per the PCAOB, investors and other users of financial statements have “continued to request this information.”

We are now a long way from the PCAOB’s original concept release.  These rules soon will become reality, but they miss the true drivers of audit quality.

The rulemaking seems to suggest that, without engagement partner name disclosure, CPA firm partners can, in effect, hide behind the name of their firm.  In a world where the great majority of CPA firm partners don’t have their names “on the door,” I can understand this perception.

However, partners do not need to have their names “on the door,” or on opinions, to feel a keen and real sense of responsibility and ownership for their work.

Choosing a career in public accounting puts us in a unique position of trust.  The public relies on the work we do each day.  They rely on our integrity, objectivity, independence and professionalism.  I never forget the importance of this trust and the importance of the service that we provide for investors.  It is one of the reasons that I became and have remained a CPA, and I would argue that a strong sense of ethics is intrinsic, in most cases, in those who choose this profession.  As a CPA firm partner, I also have a responsibility to maintain the trust of my fellow partners, the other professionals in our firm, and others in our profession.  It is my strong opinion that audit quality is rooted in this deeper desire to serve the public trust as well as our responsibility to our firms and the profession.

Including our names in opinions will not change or elevate this desire to provide quality audit services.  The disclosure of engagement partner names does not drive audit quality.  Integrity does.