PwC Adds Two Independent Directors to its Board


According to the Wall Street Journal, PwC recently added two (2) independent directors to the partnership's governing board, a move that has been encouraged in regulatory circles but is not required in the US.  PwC, which indicated they are adding outside directors as a means to improve governance of the firm (for example, by providing additional perspectives and diversity to the Board), is the first Big 4 accounting firm to do so. 

The article indicated, 'In 2008, a Treasury Department advisory committee on auditing said such a move “could improve investor protection through enhanced audit quality and firm transparency”' and also noted that Steve Harris, a member of the Public Company Accounting Oversight Board, advocated the idea in a speech last month, saying independent directors represent “basic sound governance practice.” 

I applaud the move and am sure others will as well - 

SEC to Re-evaluate Loan Rule


In comments made before the 2017 SEC/NASAA Annual Section 19(d) Conference, SEC Commissioner Michael Piwowar stated that as Acting Chairman he had directed the SEC staff to re-examine the independence rules on lending relationships, which deem that loans between the firm and its audit client and certain "related" entities impair independence.  The rule, he said, includes loans from entities holding more than 10% of an audit client's securities, which may have no bearing on the auditor's objectivity if the entity cannot exercise influence over the shares. Suggesting that the situation creates undue compliance burdens, particularly in the asset management industry which often holds securities for customers without beneficial ownership, he said regulators should ensure that the rules function as intended and in an efficient and effective manner.  The SEC Staff addressed the matter in a "no action" letter to Fidelity Management and Research Co. issued almost one year ago, a temporary fix set to expire 18 months from the date of the letter. 

Can We Please Remember Who "the Client" is?


An article in Accounting Today ("Auditor Rotation Rules Could Lead to Dissatisfied Clients") about audit firm rotation indicates that a poll by U.K.-based Source Global Research found that two-thirds of senior executives were dissatisfied 2 years after they switched auditors. Having spent much of my career debating independence in the audit profession, I am dumbfounded that some still do not know for whom an audit is performed. And no matter how many times regulators remind auditors that the independent audit is performed for the benefit of shareholders -- aka "the client" -- we just don't seem to get it. 

A quote in the article even states that "changing auditors is designed to increase client satisfaction.." which, unless "client" means the company's shareholders, does not hold water. The purpose of audit firm rotation, plain and simple, is to remove the familiarity threat that can take hold when a firm audits the same client for many years and enhance independence.  We do have partner rotation in this country for public companies and that alleviates the same threat, so I am not proposing or opposing firm rotation.  I just wish we as a profession could keep our heads in the right place when it comes to the auditor / client relationship and acknowledge that: (1) shareholders come first, and (2) management is not king, despite the way our public company audit system is currently structured. 

Lest we want to move to a government audit model, which (sadly) I'm not convinced I won't see in my lifetime.