TheCorporateCounsel.net

The comment period for the PCAOB’s “NOCLAR” proposal officially concluded yesterday – and although more comments will continue to roll in, now seems like a good time to take stock of the feedback to-date. As of the date of this blog, the PCAOB has posted 26 comment letters. Here are a few that caught my eye:

– Council of Institutional Investors – supporting the proposal, and encouraging the PCAOB to further expand the independent auditor’s responsibilities with respect to the company’s internal whistleblower program to include (i) requiring the auditor to obtain an understanding of the audit committee’s and management’s policies, processes and procedures for the program; (ii) testing controls to determine if the process operates as it is expected to; and (iii) reviewing and assessing complaints that are reasonably likely to have a material effect on the financial statements.

– Audit Committee Council (advisory committee of the Center for Audit Quality comprised of independent audit committee members) – supportive of modernizing accounting standards, but sharing the concerns on this proposal that were expressed by the dissenting PCAOB board members, and suggesting a more risk-based approach where the auditor considers the role that the company’s compliance program plays in detecting NOCLAR that could be material to the audited financial statements.

– Auditing Standards Committee of the Auditing Section of the American Accounting Association – 31-page letter (!) to list “a number of fundamental concerns” that prevent the participating members from supporting the the proposal.

– US Chamber of Commerce – Requesting that the PCAOB withdraw the proposal because it “could degrade audit quality, harm investor protection, weaken attorney
client privilege protections, and impose additional audit costs on issuers by an estimated $36 billion dollars, far exceeding Sarbanes-Oxley 404b implementation.”

– Jon Lukomnik (well-known corporate governance thought leader – e.g., a member of Deloitte’s Audit Quality Advisory Committee and the PCAOB’s Standards and Emerging Issues Advisory Group, former member of the PCAOB’s Standing Advisory Group) – generally supporting the proposal, but suggesting improvements to address the critiques of “over-reaching.” Specifically, recommending two types of noncompliance that auditors should plan to identify, evaluate and, if necessary, communicate – systemic noncompliance, and noncompliance by senior officers or senior management responsible for a quantitatively material amount of revenue, profit or fixed assets.

– Society of Corporate Compliance and Ethics – supporting the proposal, but strongly recommending further refinement on a few specific points.

I blogged last month about the potential impact of this standard on audit committee members. As this Perkins Coie blog notes, the Center for Audit Quality has posted a two-page letter for audit committee members to sign on to, which expresses concerns with the proposal. Other organizations, including the Society for Corporate Governance and the American Bar Association, will likely also submit comments.

– Liz Dunshee