Securities and Exchange Commission Chairman Gary Gensler said the US audit regulator has been slow to update its rules, in a speech marking the 20th anniversary of the law that created it.
The Public Company Accounting Oversight Board, created as part of the Sarbanes-Oxley Act, continues to work with interim standards that were allowed to use from the American Institute of Certified Public Accountants, a professional association guidelines and rules of which they are often used as alternatives. for the industry.
“The expectation was that the board would produce a more appropriate set of standards in the future,” Gensler said July 27 at an event hosted by the Center for Audit Quality, a U.S. accounting industry group. “Historically, however, the PCAOB has been too slow to update auditing standards.”
Gensler, during the speech, also said that the Chinese government must decide whether to comply with US law in order for Chinese companies to continue to be listed on US exchanges. The issue arose after the US passed a law banning foreign companies from its exchanges if their auditors have not been inspected by the PCAOB for three consecutive years.
Erica Williams, who became PCAOB president in January, has been working with other board members and staff in recent months to advance the agency’s strategy. The PCAOB said in May that it will develop proposals this year on audit quality controls and auditors’ consideration of potentially illegal acts in the audit of their clients.
Last month, the watchdog adopted a rule that strengthens requirements for lead auditors in supervising other auditors outside their companies, the first rule to approve Williams.
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The SEC in November appointed four new board members to the PCAOB, including Williams, after ousting former chairman William Duhnke and moving to replace the board in June 2021.
“While they have their work cut out for them, I believe that Chairwoman Erica Williams and the Board can live up to the original vision of Congress in terms of rulemaking,” Gensler said.
Gensler previously said the PCAOB was not living up to its role as the establishment and enforcer of auditing standards.
Williams and the board have established an aggressive standard-setting agenda and welcomes Gensler’s support as they work to modernize and strengthen its standards, a PCAOB spokesman said.
Gensler said in the July 27 speech that the quality of U.S. auditing has improved since 2002, but noted that some areas, such as auditor independence, are still lacking. Gensler said he has asked the PCAOB to consider updating the audit independence standards and said the SEC may need to revise its own auditor independence rules.
The US securities regulator in 2020 gave auditors more discretion in assessing conflicts of interest in their relationships with the companies they audit. Currently, the PCAOB’s rules are aligned with those of the SEC.
Gensler also urged audit firms to review and improve their independence protocols regarding their audit and consulting practices. “Given the growth in size and complexity of non-audit services, it is important that audit firms maintain a culture of ethics and integrity, giving the highest priority to auditor independence in the entire firm, not just the audit practice,” he said. .
EY is considering splitting its business into separate audit and consulting firms that will provide audit and advisory services to clients.
Write to Mark Maurer at Mark.Maurer@wsj.com
This article was published by Dow Jones Newswires, another title of the Dow Jones Group
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