Ensuring Integrity: The Seventh Annual Auditing Conference
“We want you to know we are about integrity,” Center for the Public Trust Chairman David A. Costello told the audience at the Annual Audit Conference, “Ensuring Integrity,” held on November 28. “Everything we do is to champion the public trust,” he stated as he kicked off the day’s presentations by top regulators and policymakers of the accounting profession. In it’s seventh year, the Conference is co-sponsored by the NASBA CPT and Baruch College’s Zicklin Center for Corporate Integrity.
Conference keynote and Public Company Accounting Oversight Board Chairman James R. Doty told an audience of Baruch students, academicians and CPAs in public practice that the PCAOB’s inspectors are focusing on the root causes of firm problems. The inspectors identify the problems, then expect the firm to find the root cause, and within a 12-month period develop an effective way to deal with it. He said the worst thing a firm can do is to blame a problem on an individual, rather than recognizing it occurred as a result of the way the firm was operating.
The PCAOB’s proposals and roundtables have shown that, “People are pushing for more from the auditor, not less,” Chair Doty reported. This is why the PCAOB is looking at changing the auditor’s report to impart the auditor’s insight, not changing the scope of the auditor’s work, but making it more relevant. “I want to see a vibrant audit profession that competes on quality more than price. I want to see a profession that is revered for insight and clarity, not box-checking,” he said. “I want to see a profession that attracts and retains top graduates who are and remain committed to excellence in public service.”
Mr. Doty kept his remarks brief and encouraged students, in particular, to ask questions. One student asked, “What penalties could the SEC take to encourage other countries to let the PCAOB inspectors in?” Mr. Doty replied, “Our duty is to inspect firms without regard to where they are located. Our challenge is to do our statutory duty. Areas where we can’t inspect, then we have to consider what our statutory duty is – and that would be to take steps to de-register.”
Another student asked, “What drives people to act unethically in the accounting profession?” Chair Doty responded that a similar pattern is evident in other professions, as there are some who should not have become professionals because they have to deceive. However, other people get on a slippery slope when they know they are approaching the limits of professional practice, then step over the line, and then rationalize their behavior. He told the student, “You become a professional because you want to have the power to change something.”
A summary of the PCAOB’s ongoing activities was presented by Jennifer Rand, PCAOB Deputy Chief Auditor – Deputy Division Director. Ms. Rand identified as near-term PCAOB standard-setting activities:
- Adoption or re-proposal on Related Parties
- Proposal on reorganization of PCAOB Auditing Standards
- Proposal on Auditor’s Reporting Model
- Proposal combining projects on Auditor’s Responsibilities with Respect to Other Accounting Firms, Individual Accountants and Specialists
- Adoption or re-proposal on Audit Transparency: Identification of the Engagement Partner
- Adoption or re-proposal on Audit of Brokers and Dealers (hopefully early in 2013)
- Proposal on Going Concern (hopefully early in 2013).
She also told the conference about the “Staff Audit Practice Alert No. 10: Maintaining and Applying Professional Skepticism in Audits,” which was to be released on December 4.
Dr. Douglas Carmichael, Professor of Accounting at Baruch College and former PCAOB chief auditor, observed, “There is a growing difference between the standards of the AICPA and the PCAOB on audit report, for example. ” He asked a Conference panel, “What impact do you see as the ASB (Auditing Standards Board) and PCAOB have separate standard objectives?”
Robert E. Chevalier, an audit partner in KPMG’s Department of Professional Practice, said both the ASB and the PCAOB have been moving ahead with their standard setting. “It is becoming more and more difficult to serve both private and public companies,” said Chevalier. “It is starting to feel like there will be two audit methodologies, meaning additional training costs for the firms. This has created tension in our firm and I am not sure it is going to get better. We will just have to deal with it.”
In response, Ms. Rand added, “We are not trying to be intentionally different just because we can be. There are a number of reasons to cause us to be different and I don’t think that situation will change, but we are working through those differences.”
Another project under development is a new edition of the COSO (Committee of Sponsoring Organizations of the Treadway Commission) Internal Control Framework, which was released for comment in September and is scheduled to be finalized on March 31, 2013. Though the Framework’s key concepts are “timeless,” since its development in 1982, the “business, governance and regulatory environments have changed and updating is appropriate.”
The five components of internal control that are detailed in the framework are: Control environment, risk assessment, control activities, information and communication and monitoring. It will be presented as three volumes: executive summary, framework and appendices and tools. The revision contains 17 principles that formalize the fundamental concepts underlying the components.
One of the COSO sources was Brian Croteau, Deputy Chief Accountant in the Office of the Chief Accountant of the SEC, who also spoke at the Conference. He summarized the SEC’s activities in 2012 including its efforts to implement the Dodd-Frank Act and the JOBS Act.
“The SEC is getting 8-10 whistleblower tips per day,” Mr. Croteau told the Conference. The impact of a recent exposure draft by the International Ethics Standards Board for Accountants on “Responding to a Suspected Illegal Act” and how that could encourage accountants to whistleblow was a topic focused on by the Audit Conference’s legal panel. Noel Allen, NASBA Legal Counsel and CPT board member, shared that 75 whistleblowing cases involving CPAs have been reported recently. He noted there are varying views among regulators on how whistleblowing might apply to accountants and its potential effect on the candid client/accountant relationship. “It is unsettled law,” he stated. Additionally, he reminded the accountants that the place to look for guidance would be in their state accountancy laws and rules.
Other Auditing Conference speakers included: Jennifer Burns of Deloitte, LLP; Professor Joseph V. Carcello of the University of Tennessee; Luciano Centanni of Grant Thornton; Robert Colson of Baruch College; Nick Cyprus of The Interpublic Group of Companies; Jennifer Haskell of Deloitte; J. Stephen McNally of Campbell’s; Tom Ray; Scott Univer of WeiserMazars, LLP; Philip Wedemeyer of the audit committee of Atwood Oceanics; and Michael Young of Willkie Farr & Gallagher.