December 16, 2015

PCAOB Adopts Rules Requiring Disclosure of Engagement Partner

As noted in this release, the PCAOB adopted new rules and related amendments to auditing standards yesterday requiring audit firms to disclose the names of each audit engagement partner – as well as the names of other audit firms that participated in each audit – on a new PCAOB form, Auditor Reporting of Certain Audit Participants, or Form AP. We’ll be posting memos in our “Auditor Engagement” Practice Area.

Subject to the SEC’s approval of the rules, auditors will be required to file a new Form AP for each audit within 35 days after the date the audit report is first included in an SEC filing (or 10 days after the audit report is first included in an IPO filing) disclosing:

  • Name of the engagement partner;
  • Names, locations, and extent of participation of other accounting firms that took part in the audit – if their work constituted 5% or more of the total audit hours; and
  • Number and aggregate extent of participation of all other accounting firms that took part in the audit whose individual participation was less than 5% of the total audit hours.

The disclosure requirement for the engagement partner will be effective for audit reports issued on or after January 31, 2017, or three months after the SEC’s approval of the final rules – whichever is later. For disclosure of other audit firms participating in the audit, the requirement will be effective for reports issued on or after June 30, 2017. See also this Cooley blog.

2016 Shareholder Activist Themes & Opportunities

The latest survey from FTI Consulting and Activist Insight explored themes and opportunities activists expect in the coming year, and the investing practices and strategies they plan to employ. Results are based on input from 24 activist firms that have collectively engaged in over 1200 events in more than 10 countries.

Key findings include:

  • Energy sector was identified among activists as the most significant activism opportunity based on undervaluation, followed by the industrial sector.
  • Healthcare ranked third, but is tempered by a signficant percentage of respondents reporting limited opportunity in that area – which the authors attribute to debate among activists as to the likelihood of consolidation in the healthcare industry.
  • Most activists believe that the best activism targets are micro- to mid-cap stocks rather than mega-caps, with the greatest activity expected among small caps.
  • Activists claim to have much longer holding periods than they’ve exhibited in the past – an average of 3 years compared to an average of 1.5 years two years ago, correlating with an expected increase in operational (as opposed to event-driven) activism – assuming the longer holding periods stick.
  • 80% of investors think merger activism will increase in 2016.

See my earlier blog on Part I of the survey released in September, which addressed – among other things – the expected cooperation of institutional investors with activist campaigns, and these recent articles, “Why Wall Street’s campaign to enrich shareholders could be bad for everyone else” and “Investor Activism Doesn’t Work With Tech Companies.”

Board’s Role in Corporate Political Spending

In this podcast, Center for Political Accountability President Bruce Freed discusses the board’s role in corporate political spending, including:

– Why should directors get involved in the company’s political spending activities?
– What is the range of board involvement among companies currently?
– What are the risks of the board not being aware or involved at some level?
– How does a board decide on the appropriate oversight role?
– What/where can boards look to for guidance?
– Once established, how does the board ensure adherence to its political spending policies?


– by Randi Val Morrison