The PCAOB is looking to increase outreach to all of its stakeholders, including the business community, in part by setting up two liaison positions, one for investors and the other for businesses. The U.S. Chamber of Commerce has for years said the board should increase dialogue with the business community, saying the board was not getting sufficient views from companies.
The U.S. Chamber of Commerce seems to finally have a sympathetic ear at the PCAOB.
For years, the powerful business group said the PCAOB gets insufficient input from businesses and pressed the board — to no avail — to set up a separate Business Advisory Group (BAG) that would be comparable to its Investor Advisory Group (IAG), which is dedicated to presenting investors’ views.
While the PCAOB will not form a separate advisory panel for companies, it signaled that it wants to improve its outreach to them. The audit regulator’s effort comes after a wholesale change in the board’s leadership in early 2018. William Duhnke, who became chairman in January, said he wanted to take a fresh look at every function of the board.
“I have had that conversation with them [the chamber] and part of what I hope to satisfy that need is through that outreach effort,” Duhnke said in response to a question by Accounting & Compliance Alert on November 29 at the sidelines of the board’s Standing Advisory Group (SAG) meeting. “We will have investors outreach; we will also have business outreach.”
He was making a reference to two liaison positions that are being created within a newly formed Office of External Affairs headed up by Torrie Miller Matous. The new office combines the offices of public affairs, government relations, and outreach to businesses and investors. The two liaisons will be the central points of contact for investors or businesses who want to get in touch with or get responses from the board.
The board under former Chairman James Doty did not act on the chamber’s request, but some observers noted that the PCAOB’s SAG, the board’s main panel of external advisers, includes a large share of corporate representatives. Some investor advocates have pointed out that the sole mission of the PCAOB under the Sarbanes-Oxley Act is to protect investors. The 2002 law created the board to supervise auditors and prevent accounting abuses like those at Enron and WorldCom.
But now the PCAOB, under Duhnke’s leadership, seems more eager to balance the needs of both investors and businesses, even as it emphasizes its priorities of advancing the public’s interest.
“We want to have a communication loop,” Duhnke said. “People feel like they talk to us and we don’t talk back. So, we want to make sure we are putting that in place so they feel like they are having a conversation, not just talking to an empty box.”
The Chamber of Commerce said that the business liaison will likely be satisfactory.
“We had proposed an advisory group because of the lack of communication between the PCAOB and public companies,” Tom Quaadman, an executive vice president with the chamber, said on December 7. “Our goal was to foster a dialogue so that the PCAOB could be a better informed regulator and companies would have an understanding of the Board’s policies and priorities. Chairman Duhnke has made such a dialogue a priority which makes an advisory less of a necessity than it has been in the past.”
The chamber was especially bothered by what it sees as excessive PCAOB inspections of the auditor’s attestation of a client’s internal control over financial reporting under Section 404(b) of Sarbanes-Oxley. In the chamber’s view, the inspections make it costlier for some companies to hire external auditors and complicates the dealings between companies and their outside auditors. In May 2015, Quaadman sent a letter to then SEC Chief Accountant James Schnurr and former PCAOB Chairman Doty, arguing that the PCAOB’s inspections were adding to audit costs without providing sufficient benefit to investors.
In the 2015 letter, Quaadman criticized the audit regulator for not following due process or engaging in a dialogue with the business community. The SEC and the PCAOB staff then engaged in direct dialogue with the chamber and other groups over the issue, but the audit regulator did not set up a BAG.
In the meantime, Duhnke said the board’s assessment of its advisory groups is continuing.
He said the PCAOB will likely to maintain the two advisory groups — SAG and IAG. “But we are having a conversation about what they are, how big are they, who’s on it, what is their function vis a vis our advisory needs, and then how do they work, either together or in complement with our outreach efforts.”