Following the 2008 financial crisis and the ensuing recession, the audit profession, and its relationships with management and audit committees have come under intense scrutiny from regulators and policymakers. Changes are being considered that would profoundly impact auditors and their clients.
The European Commission has expressed concerns about concentration in the audit profession, believing it restricts choice and competition, and about the independence of audit firms. The commission's proposals to address those issues include mandatory firm rotation, a prohibition on provision of non-audit services to audit clients, a prohibition on "large" audit firms from providing any non-audit services and an increase in reporting responsibilities for either auditors, audit committees, or both.
In the United States, the audit profession's regulator, the Public Company Accounting Oversight Board (PCAOB), uncovered persistent problems during its audit firm inspections that raised its concerns about auditor independence and skepticism, leading the PCAOB to publish concept releases on mandatory firm rotation and the auditor's reporting model.
Tapestry's audit committee networks play a constructive role, informing regulators and policymakers of their work and ensuring that the voice of audit committees is heard in the policymaking process regarding the audit profession. Many members have met with policymakers or expressed their views by writing comment letters.
Audit committees discuss audit policy with European Parliamentarians
On September 18, 2012, members of the European Audit Committee Leadership Network (EACLN) and Bank Governance Leadership Network (BGLN), who are audit committee chairs or members drawn from leading global public companies, met with members of the European Parliament (MEPS) and their staff in Brussels to discuss recent developments in audit policy.
Audit policy initiatives in the European Union and the United States
European and North American audit chairs are opposed to many of the proposed changes to audit policy. As alternatives, network members offered a number of approaches that rely on strengthening the role of the audit committee in dealing with the auditor. Members believe that policymakers might be open to such proposals if they had a better understanding of the role that audit committees play, both in general and in interactions with the auditor.
Audit committee perspectives on the European Commission's green papers
In discussion with Jonathan Faull from the European Commission, audit chairs suggested that many of the corporate governance and audit policy issues raised by the commission could be dealt with by articulating the specific responsibilities and required composition of independent board committees for audit, remuneration, and nomination. Some EACLN members saw the value of mandatory firm rotation, but most preferred to have it managed by the board and disclosed to shareholders rather than imposed by regulation.
Audit committee perspectives on the PCAOB
Audit chairs suggested a number of ways that the PCAOB can improve independent audits, including the opportunity for the PCAOB to identify best-practices insights that could be broadly shared. Audit chairs also urged the PCAOB to be mindful of unintended consequences in its efforts to develop standards on issues such as the level of disclosure required in an auditor's report.