| Reports of the Major Public Company Audit Firms to the Department of the Treasury Advisory Committee on the Auditing Profession |
Overview
The U.S. Department of the Treasury established the Advisory Committee on the Auditing Profession last year as a component of the Treasury Secretary’s broader agenda aimed at addressing issues impacting the United States ability to remain competitive in an increasingly globalized economy. As emphasized by Secretary Paulson when announcing its members, the Committee should seize the opportunity “to develop recommendations as to what can best be done to sustain a vibrant auditing profession, a profession whose work is critical to investor confidence in our capital markets.” (Oct. 2, 2007).
The Center for Audit Quality (CAQ) worked to coordinate the profession’s input and efforts aimed at informing the Advisory Committee’s work.
As a key element of that effort, the CAQ on January 23 submitted a report to the Advisory Committee to help its members gain a more comprehensive, holistic understanding of the profession. The CAQ later submitted two addenda to the report. Taken together, this data represents the profession’s best efforts to provide as much reliable data as feasible to accommodate the time table of the Advisory Committee.
In overseeing the data collection, the CAQ developed a series of templates for firms to use in gathering data and engaged the services of an outside law firm that managed the project to ensure that data was accurately aggregated and fairly analyzed.
The submissions aggregate quantitative data and present descriptive information on corporate governance for each audit firm. The use of aggregated data informs public policy considerations by providing representative insights regarding the characteristics of and challenges for the profession while mitigating concerns about confidentiality, legal ramifications and competitive issues.
The unprecedented submissions contain detailed information about the structure and governance, financial circumstances, litigation exposure and human resources of the six largest U.S. audit firms – BDO Seidman LLP, Deloitte & Touche USA LLP, Ernst & Young LLP, Grant Thornton LLP, KPMG LLP and PricewaterhouseCoopers LLP. Together, the six firms provide audit services to approximately 6,400 publicly traded companies.
Combined with profession testimony, comment letters and other data, the submissions provide a meaningful look at the public company auditing profession. In particular, they help demonstrate the threat to the sustainability of the largest firms from litigation exposures.
