TheCorporateCounsel.net

Earlier this month, the PCAOB announced that it had issued for public comment a proposal regarding public reporting of standardized firm and engagement metrics and a separate proposal regarding the PCAOB framework for collecting information from audit firms .

The firm and engagement metrics proposal would, if adopted, require PCAOB-registered public accounting firms that audit one or more issuers that qualify as an accelerated filer or large accelerated filer to publicly report specified metrics relating to such audits and their audit practice. The PCAOB describes the rationale for the firm and engagement metrics proposal as follows:

Reliable, consistent information can improve investors’ ability to make informed decisions about investing their capital, ratifying the selection of auditors, and voting for members of the board of directors (including audit committee members). At the same time, it can improve audit committees’ ability to choose among and monitor the performance of auditors.

While some firms publicly disclose certain firm-level metrics today, the PCAOB’s staff has observed that the number of firms doing so is small.

Furthermore, the disclosures are inconsistent across firms — there are no common definitions or calculations allowing for consistent comparisons — and most of the disclosures are voluntary, so firms are free to revise or discontinue such reporting anytime. At the same time, there is a lack of incentive for firms, acting on their own or collectively, to provide accurate, standardized, and decision-relevant information about their firms and the engagements they perform.

The firm reporting proposal would, if adopted, amend the PCAOB’s annual and special reporting requirements “to facilitate the disclosure of more complete, standardized, and timely information by registered public accounting firms.” Consistent with current practice, much of the information would be disclosed publicly, while some would be available to the PCAOB only for oversight purposes. The PCAOB describes the rationale for the firm reporting proposal as follows:

The basic framework for the PCAOB’s annual and special reporting requirements has not been substantively reevaluated since its adoption in 2008. The Board has considered the experience of PCAOB staff, investors, and others with the current reporting framework. Informed by these considerations, the proposal seeks to update and improve the reporting requirements to facilitate more public disclosure that would be informative and useful to investors, audit committees, and other stakeholders.

Enhanced reporting requirements also have the potential to facilitate the PCAOB’s oversight functions and its ability to protect investors.

The deadline for public comment on both proposals is June 7, 2024.

– Dave Lynn