U.S. Regulator to Put the Spotlight on Audit Quality in 2020 - Wall Street Journal

William Duhnke, chairman of the Public Company Accounting Oversight Board, spoke at The Wall Street Journal CFO Network conference in June. Photo: Denny Henry for The Wall Street Journal

By

Mark Maurer

Dec. 27, 2019 6:00 am ET

The U.S. Securities and Exchange Commission and its audit-watchdog arm, the Public Company Accounting Oversight Board, have plans in 2020 to further shape the role of auditors of companies publicly listed in the U.S.

The PCAOB has been undergoing a strategic makeover in an effort to overhaul its largely outdated quality-control rules and streamline how it conducts inspections of audit firms. The move is part of a five-year plan that the board launched in 2019 and reaffirmed at a meeting last month.

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The SEC, which oversees the PCAOB, in December 2017 replaced the entire board after officials learned about the leak of confidential inspections data. Under Chairman William Duhnke, the board attempted a holistic approach to repairing its infrastructure.

“While we are proud of what we have accomplished so far, much more remains to be done to fulfill our strategic vision,” Mr. Duhnke said earlier this month at an SEC meeting.

In the year ahead, the board intends to advance at least two new proposals: one rule governing audit firms’ approach to quality control and another creating a permanent program for the inspections of broker-dealers.

The board is considering revisions based on a proposal by an international standard-setting body, the International Auditing and Assurance Standards Board, that focuses on potential risks to audit quality. After the comment period ends in March, the PCAOB will likely draft a formal proposal.

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As for a new rule on an inspection program for broker-dealers, the details are unclear. The PCAOB held off on related proposals while a bill exempting small, privately held broker-dealers from U.S. audit regulations circulated through the House of Representatives in 2018. The House bill died, but the Senate introduced a similar bill in October, which has been referred to the Committee on Banking, Housing and Urban Affairs. The result of this legislative effort could affect a proposed PCAOB rule.

The board also plans to make its inspection reports more detailed, starting with a new report on 2018 inspections for the largest U.S. audit firms to be released sometime in the first quarter.

Meanwhile, the SEC is considering its own changes to regulation. The agency plans to propose a further loosening of auditor independence rules early next year, giving audit firms more discretion in assessing conflicts of interest, according to people familiar with the matter.

Write to Mark Maurer at mark.maurer@wsj.com

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